Important information for residential property Buyers and Sellers in WA who are relying on Keystart Loans and utilising a pre purchase building inspections.
Keystart provides a great service to West Australians by providing loans and loan conditions which may otherwise not be available. So this is a very positive outcome for West Australians.
1 The Issue
While Keystart promotes the use of pre purchase building inspections for all of their clients and requires inspections of properties over 25 years of age, buyers and sellers need to be aware of potentially unintended outcomes.
The often used REIWA Pre Purchase Building Inspection Annexure proposes a narrow building inspection type limited to structural defects on the residential property (although the standard clause now provides an option to extend the structural inspection to other structures on the property if nominated). In essence, these inspections are limited to the parts of the sub floor frame or concrete slab that can be visually inspected, load bearing walls and roof frames. All other aspects of the building (s) are essentially to be ignored in the building inspection report unless a significant safety issue is identified on a specific item.
Given the very narrow scope of structural inspections within the REIWA Annexure, buyers often opt for full building inspections as structural only inspections often simply do not provide buyers with a complete understanding of the overall condition a residential property. These broader inspections, also in accordance with AS 4349.1, will review the entire property and any structure within 30 metres. The inspections will not only look for structural defects but significant building and substantial maintenance defects which the buyer will need to address in the near term. Unlike the REIWA Annexure these inspections will also visually review where accessible; roof covers, roof plumbing, non-structural walls, ceilings, carports, gazebos, pergolas, retaining walls, fences etc, etc. While non-structural defects will not be able to be claimed against the seller under the REIWA Annexure, there is a strong argument to suggest that the buyer should at least be aware of these broader issues if they exist.
The challenge we have seen recently seen with Keystart is that, notwithstanding the constraints of the REIWA Annexure they are often insisting that very minor defects or discretionary maintenance items identified in building inspection reports be remediated and that these items must be reinspected by the building inspector prior to settlement. Where these actions are not undertaken, Keystart may not approve loans or may withhold loan approval until such items are remedied and signed off by the inspector. The challenge with this approach is that sellers are often required to undertake a myriad of minor works to complete a sale and buyers are forced into obtaining multiple building inspection reports to confirm completion of the required works.
From a positive perspective it can be argued that Keystart is simply looking out for the interest of its clients and that they want the property to be in the best condition possible at settlement. Given that some Keystart clients have limited resources, it could be argued that Keystart’s intentions are focused on the best outcome for their clients. The downside is that by the time Keystart make these requirements known, parties are often heavily financially committed to the transaction such that they feel forced to proceed.
From a negative perspective it could be argued that sellers and buyers are being forced into incurring costs and potentially delayed settlements as these often minor issues are attended to. Further, all of those associated with the transactions including agents, conveyancers and inspectors are required to resolve a myriad of minor issues, generally outside the scope of the REIWA Annexure.
2 The Options
There are two simple solutions. Firstly it would be beneficial if Keystart could clearly articulate its requirements in relation to building inspections for its clients. In doing so sellers, buyers, agents and inspectors would have a much clearer understanding of what the key issues are prior to entering a transaction which Keystart is to be involved.
The alternative approach is that where a Buyer intends on using Keystart to finance a property purchase, the buyer ensures all stakeholders are aware especially, their inspector. Buyers should consider that they only request a building inspection undertaken in strict compliance with AS 4349.1 Appendix A. While this inspection aligns with the REIWA Annexure, it is a very limited scope inspection which only covers a relatively small but important part of the residential building. However, the report will not identify any items other than structural defects hence the likelihood of having to remedy non-structural defects will largely be eliminated. The downside of course is that the buyers and Keystart will potentially know much less about the building and the buyer may face remediation costs post purchase on items that they were otherwise not aware.
- Keystart provides a wonderful service to West Australians and it is a source of unique loan funding.
- Keystart’s requirements in relation to building inspections are not clear. This lack of clarity is causing frustration amongst sellers, buyers, inspectors and those involved in progressing property sale transactions. It would be beneficial for all stakeholders if Keystart would better articulate its specific requirements on building inspections so as to avoid the ongoing challenges. Once the requirements are clearly understood they can be incorporated into offer to purchase contracts.
- In the interim, a solution is for Buyers to only request Building Inspections in strict accordance with AS 4349.31Appendix A. These inspections will not comment on anything other than structural defects on the residential building and hence the potential for minor remediation works from Keystart will be limited. The downside is that the buyer may have a much more limited understanding of the true condition of the entire property Disclaimer
The above is not intended as legal or financial advice. Buyers, sellers agents or conveyancers should seek independent legal advice, especially when Keystart loan funding is being contemplated.
Build, Buy, Invest in property with confidence.