There are two types of pre-purchase inspection – building and pest. You can do either or both or none.

• A building inspection looks at the building, inside and out, and notes any issues from major structural faults to minor defects, maintenance issues and safety hazards.  Outside, it may include cracking, rising damp, drains and gutters, sheds, retaining walls and fences, windows and roofing. Inside, it looks for cracks in the walls, uneven or springy floorboards, leaky ceilings and the quality of finishes and fittings.  The more thorough investigations will also investigate roof spaces (for any defects with the insulation or framing) and under the floor, but these will often be excluded.
• A pest inspection looks for evidence of timber pest activity (such as termites).

There are two ways you can do a building/pest pre-purchase inspection:

• If the property isn’t going to auction, you make your offer subject to a satisfactory inspection.  The special condition is added into the contract (see eg below) and it gives you are given a set timeframe to organise the inspection and if you then produce a report identifying defects of a particular level (depending how it is drafted), you can terminate the contract and get your deposit back.
• If the property is going to auction, your only option is to do the inspection prior to making a bid.

The costs can vary from a few hundred dollars up to $1000, as level of detail and qualification of the inspector will vary.  At a minimum, you should make sure that your inspector has full professional indemnity insurance.

Should you do it? This is a matter for you.  Yes, you are about to make a very big investment and a pre-purchase inspection can identify future liabilities that will cost far more to fix than the price of the inspection.  And I have helped clients use pre-purchase reports to negotiate significant discounts on the purchase price and generous special conditions where the vendor agrees to rectify identified issues prior to settlement.

But if you are bidding at auction, and in a part of Melbourne where most properties go to auction and have 10+ bidders and you might need to bid at 4 or 5 before you get lucky, doing pre-purchase building and pest inspections for all properties can get pretty expensive.  And even if you identify faults, you aren’t going to be able to use this knowledge to negotiate on price. Similarly, if a vendor is presented with two offers for the same price and only one offer is subject to building inspection, you know which one they’ll choose.

So what should you do? It depends on your appetite for risk and your budget.  Stumping up the cash for the reports is always the safest option.  Otherwise, if you have a mate who is a builder or architect, you could ask them to walk around with you, but you won’t have any legal recourse if they miss something.  Else you could educate yourself about the main things to look for (see eg here and here) and only organise inspections if something looks not quite right.

Where there is an owners’ corporation, the minutes of the last year’s AGM in the certificate in the vendor’s statement are a goldmine in finding out what kind of building issues affect the property.  If several are mentioned, treat this as a red flag or, at the very least, a sign that you should pay for a detailed pre-purchase inspection.  The property’s tenants and neighbours, if you can manage to strike up a conversation, can also be a wealth of honest knowledge.

It is also important to have realistic expectations of what can be uncovered by a building report and to keep perspective on any issues identified. Here is an example report – you’ll see it has many exclusions and a lot of its observations (such as water pressure) are things that you could very easily have tested yourself.

If you do decide to make an offer subject to a satisfactory building inspection, don’t let the agent or vendor’s solicitor use their preferred wording (if you can help it).  The typical clause only allows a purchaser to get out of a contract if the report identifies a major structural defect, which may not cover issues such as dodgy wiring. I’ve also seen clauses that only allow the purchaser to get out of the contract if the issue would cost more than 1% of the purchase price to fix. 

Propose something along the lines of the following instead:

The purchaser may have reasonable access to the property to inspect buildings personally or by agents. This contract is conditional upon the purchaser obtaining at her own expense a building/pest inspection report and accepting it as satisfactory within 10 days of the vendor signing the contract.  If the report is not to her satisfaction, the purchaser may terminate this contract by written notice to the vendors' solicitor/conveyancer within 10 days of the vendor signing this contract, whereupon the contract shall end and all monies paid shall be repaid to the purchaser without deduction.

You can propose this by emailing it to the real estate agent prior to coming in to make a written (i.e. signed) offer.  They can then either cut and paste (or handwrite) it into the contract or ask the vendor’s solicitor to do the same (if they don’t yet have hard copies of the contract).  You could even print four copies of the clause and keep it in your handbag for pasting in (which may prevent the agent going back and forth about the details of the clause).  If the clause is added after printing, it should be initialed by all parties.

If your offer is accepted then organise the inspection straight away, as the clause will expire after the stated timeframe. Most inspectors can turn something around in 3 days and some within 24 hours.

If defaults are identified, you don’t necessarily need to terminate the contract.  The vendor may be happy to agree to a reduction of the purchase price (adjusted at settlement) or agree to fix certain things prior to settlement. Make sure any subsequent agreement is properly recorded.

For more advice on buying your dream home, and to learn how Nest Legal can help, visit http://www.nestlegal.com.au/moving-house/