🏠 First Home Buyer Series : Part Six

Due Diligence aka ‘Do Your Homework’!

It’s really important to do your research before you buy a property as you need to know what you’re getting in to. Undertaking due diligence enables you to get impartial reports from the experts before you sign on the dotted line.

Both formal and informal enquiries should form part of your due diligence checklist. It is your responsibility as the buyer to carry out these enquiries, but you could ask your lawyer to help (bear in mind there will likely be additional charges) or the real estate agent listing the property.

So, what’s involved?…

 

1. Informal research

It definitely pays to carry out the informal enquiries first, before spending any of your hard-earned cash on reports for a particular property.

First off, does the house tick all the boxes? Make sure it has all off your “must-have” features. Remember that list we made in last week’s blog, time to revisit that one for a refresh.

Then, consider if the area meets your needs. You could ask the neighbours about the property and the surrounding area, or maybe even start to consider nearby locations that weren’t originally on your radar. You could ask what the local schools are like, whether there are good public transport links and other recent house sales in the area.

 

2. Important documents

Once you’ve done your own research and decided the house and the area are for you, there are some formal due diligence checks to undertake. Make sure you chat to your lawyer at this stage as every purchase is different and these are the things that you may include as conditions of your offer, but will typically cost you money to obtain:

  • LIM Report – This document summarises the information the council holds about the property, such as rates information, land features, stormwater and sewerage information and consents for building and resource planning. There is a fee to obtain this report from the council so it’s a good idea to ask the real estate agent if they have already got a copy they can give you. A LIM report may help you understand if the property meets regulations and has code of compliance (this is especially important if there has been major renovations).
  • Building Inspection – This document helps you to understand more about the structural condition of the property and any issues it may have. A building inspection should form part of your conditions, as your offer may be able to be revised should any issues be identified. If you’re building, you may want to speak to an architect, builder or engineer to get expert advice on what you can build and what infrastructure (like wastewater and power etc.) you’ll need.
  • Record of Title – This proves the ownership of land and the rights and restrictions that apply to the land. Understanding any covenants on the land will identify any restrictions or requirements attached to the property, such as maintaining a certain style of fence to be in-keeping with the rest of the area, not using the property for commercial purposes or not allowing certain animals to be kept on the land. Records of title will also confirm the type of title, the most common ones are fee simple, leasehold, unit and cross-lease. We will explain these further in another post in the series.
  • Registered Valuation – This report determines the value of the property and shows whether you’re paying more for the property than it’s really worth. The valuation contains information about the property, the location and compares to recent similar sales in the area to reach a valuation. This could prove to be useful if you’re unsure what your offer should be as it gives an impartial, expert opinion. Sometimes a lender will require a valuation as part of their conditional offer to lend you money, we will let you know if this is the case and can organise this on your behalf through an approved registered valuer.

 

3. Finance

We touched on this as part of our Pre-Approval blog post and why this is so important. As part of your due diligence, when you’ve found a house you want to make an offer on, we need to make sure the house meets the lender’s criteria. You then should include obtaining finance as one of the conditions of your offer so that you have some time to finalise your home loan details after your offer has been accepted.

 

4. Canterbury Properties

If you’re looking to buy your home within the Canterbury region, you will need to conduct a few extra checks. Find out whether the house was earthquake damaged, whether an EQC or insurer’s claim was lodged and whether any repairs are complete and certified. Another key point to find out is what the Technical Category of the land is as this will affect cost of insurance premiums as well as the potential costs if you’re building. You can consider taking over the seller’s insurance policy if the property is currently insured. You would need to contact the Insurance company directly or make your own enquiries to confirm insurance is suitable and available.

Here’s a link to the Home Buyers information from EQC regarding purchasing.

 

As you can see, it is important to be really thorough in your pre-purchase checks to fully understand what you’re buying before you make an offer. If you’re well informed about the area, and any issues with the property, and understand the title and any restrictions on it, you’ll be better informed to deal with potential costs and issues that arise. Remember to discuss due diligence with your lawyer early on in the process and they’ll be able to make sure all bases are covered. You should also talk to us about any reports or information we need from you to meet your home loan conditions.