An Offer to Purchase Property Contract (“O&A”) is a written agreement between buyer and seller for the purchase of a property under the conditions set forth in the offer. Once signed by both the buyer and seller and all the pre-conditions are satisfied, a buyer will generally be bound to their offer. Prior to submitting an offer, it is important that the buyer understand the condition of the home so that they can complete the transaction with confidence. If the building condition is unknown, a building inspection pre-condition incorporated into the offer can provide the buyer with greater confidence.
Incorporating building inspection preconditions inspections within O&A’s is becoming common place within Australia. Some Australian states have made this requirement mandatory. A professional, building inspector can identify existing, structural, building or maintenance issues which may need to be addressed. It can also reveal conditions which might preclude the sale of the property, depending on the terms incorporated into the O&A.
It is important to note that incorporating a building inspection clause within an O&A contract can be more complicated than it may first appear. Three key issues that a buyer should consider are:
- What type of building condition inspection do I need?
- What type of building inspector do I need?
- If a defect is identified with the property, what outcome do I want?
Choosing the Correct Type of Inspection
It is important to understand that there is a large range of building inspections available to property buyers and hence buyers need to ensure that the inspection they purchase is suitable for their needs. A structural inspection only inspects the structural elements of a property and may only identify structural defects and the overall number of general defects and safety hazards. Alternatively, a broader building inspection can identify a range of major and minor defects along with key maintenance items required immediately or which may be required over the coming year. An investigation inspection can limit the inspection to specific items within a property.
In Western Australia, the building inspection industry is unregulated and despite market positioning there is no such qualification as a “Licensed” inspector. Clients need to assess the capability of individual inspectors and inspection firms to undertake their building inspections. As a general rule we would recommend clients only use building inspectors who are qualified as Registered Builders in WA, Building Surveyors or accredited Civil Engineers. Buyers should also ensure that the firm that they engage the inspector through is well recognized with all of the appropriate insurances and appropriate accreditation.
Finally, it is important for the buyer to determine what do they want to occur to their O&A in the event that a minor, major, significant or structural issue or defect is identified through the building inspection process? REIWA has provided an excellent O&A template for a building inspection special condition but it is important to understand that the scope of the clause is generally limited to structural issues and structural defects. The challenge for the buyer when using the standard REIWA clause is that the identification of non-structural defects and or issues may have no remedy within in the O&A contract, potentially leaving the buyer frustrated.
Having noted that there are potentially significantly different outcomes for the O&A clauses for building inspections, it is important to note that there is not always a direct relationship between the extent of a defect (say minor vs structural) and the cost to rectify. For example, the damage or removal of a structural roof timber could potentially be classed as a major structural defect, yet the cost to remedy could be less than $2,000. In contrast, significant rust on all external guttering due to a coastal location may cost thousands of dollars to rectify but would not be a structural defect. The challenge for the buyer is, having progressed through several weeks or even months of intense price negotiations, do they want the contract to fail due to a structural defect (especially one which from a cost perspective is relatively easy to remedy) where remedial costs may not be significant but the vendor is not willing to remedy. Similarly some buyers may be disappointed to find that a significant non-structural issue, potentially costing many thousands of dollars to rectify, is not sufficient to terminate an O&A as the issue is not structural.
As with many components of a property purchase transaction, buyers need to seek professional advice in structuring a transaction which best suits their needs. Houspect WA is one of Western Australia’s leading building inspection firms with an enviable reputation of conducting many thousands of building inspections over the past 30 years. Our inspectors are qualified registered builders with extensive experience. Our Perth based customer service team is able to provide guidance and support where required.
Need more information – contact Houspect WA on 08 9240 8855.