After successfully submitting an offer on a property and having it accepted, there is a stage, usually 4-6 weeks, before the deal is concluded.
During the wait before Settlement, buyers are often advised to do their “due diligence on the property they have placed the offer.
But what does “due diligence” mean? And what should the potential buyer be doing during this period of time?
In the business of real estate, due diligence basically means evaluating and looking into any issues the property may have.
The potential buyer should investigate the property thoroughly to identify any flaws or issues that may cost them extra to fix after the property has changed hands.
The buyer should use their due diligence to ensure that the property fully meets their expectations of what they hope to receive after parting with their money.
The few weeks before Settlement are the last opportunity a buyer has to check the roof for leaks, ensure the basement doesn’t flood – and basically make sure that they are getting what they expected.
This is not about finding fault with every little thing of course. If you’re buying a home, you should anticipate a degree of fair wear and tear and assume some maintenance will be needed to bring it your standard anyway.
If a buyer does find major issues or flaws, they still have time to do something about it.
They can negotiate with the seller to have the problems resolved or adjust the price of the property.
If the seller is unwilling to negotiate, and as long as the buyer was properly advised and has contingencies included in the contract, the buyer can likely cancel the deal and walk away from the property without losing any of their deposit on the home.
Of course, check with your Conveyancer or legal advisor immediately before doing so. Time is of the essence in this sort of situation.
Using due diligence is an important process in buying a home.
Below is a checklist of the key aspects you should investigate before closing on a property and parting with your money.
So, ask lots of questions.
A property inspection
Many home buyers, hire a property inspector to thoroughly analyse their potential new home from top to bottom. The inspector may look for leaks in the roof, problems with the foundations, infestations of pests, structural issues, electrical concerns, and any other potential problems that could cost considerable amounts of money to fix.
Although it may seem obvious, you should also look into issues with the local area of the property.
Such as whether the property sits in the middle of a flood plain or is located within range of some other environmental factor that could be hazardous.
The inspection is best carried out as soon as possible and can often be arranged in what is called the cooling off period. That is the 2 clear business (applicable in South Australia) days after the Contract is signed and the Form 1 documents are served.
A Subject to Building Inspection can be included in the Contractual agreement.
You may well have a Subject to Finance clause in your agreement also unless you are paying cash.
A property title search
Before the buyer can take Title of the property, and become the established legal owners of the home and listed in public records, they will be advised to carry out a (CT) title search, to clarify the ownership of the property, before proceeding.
This information is provided to you within the Form 1 Notice.
This includes a Property Information Report, (CT) Certificate of Title, Lands Title Office & Council Searches, Emergency Services Levy, Land Tax information as well as Water & Sewer Charges. If applicable Strata/ Community Title info will also be provided.
Check through the Contract and Form 1 documents with the Conveyancer of your choice. Your Conveyancer will act on your behalf and liaise with the Sellers Conveyancer to ensure a smooth and speedy Settlement.
For example, what happens if the previous owner of the home has an ex-spouse who turns up claiming ownership of the property, or there are boundary disputes with the next door neighbour that are unresolved, or due to unpaid debts a creditor has placed a lien or caveat on the property.
Problems such as these are stressful and can be time-consuming to resolve, but as they can be brought to your attention, before settling on the property. Enabling you to approach the seller with any problems before they are passed on to you with the property.
These potential problems, though unlikely to occur need to be investigated and your Conveyancer should be able to assist you.
You will likely receive a number of ‘Form R’ documents also. These will help you check on a number of things as well, so read through them.
You can view a copy of Forms R1-R7 and others on our website. Best to read through these well before you buy something.
Strata or Community Title rules
If you are purchasing a homette, unit, flat or an apartment that falls within one of these associations, you should look into any conditions, restrictions, or declarations of covenants.
It is highly advisable to review the rules and regulations of the property, and any potential fines that could be incurred for infractions, as some properties have strict rules.
By purchasing the property you are agreeing to live by these rules, so it is a good idea to review them and ensure that you are willing to go along with them.
So, make sure you read through and be familiar all the documentation you receive immediately. If you’re unsure of any terms, ask your Conveyancer or the agent to explain them to you.
Most transactions are smooth & easy but you need to check you are not caught out by not checking.
To find out more, you’re welcome to call 08 83961100 to arrange a chat with people that care.
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Not sure of some of the terms & meanings used? Check our comprehensive Glossary and Abbreviations!
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