Do You Need a Building and Pest Inspection and Contract Review Before Every Property Auction?

This is a very good question from a first home buyer who wished to remain anonymous.

"I am so torn with what to do. Most of the houses we're interested in go to auction and the agents all seem to be saying 'the owner's aren't interested in offers'.

I can foresee us going to another 10+ auctions before we get lucky with a purchase, so do people actually do building inspections prior to every auction and then potentially not even come close to buying the property? It just seems very backwards.

Do buyers pay a conveyancer to review contract of sale prior to each auction?

It seems like such a waste of money when you don't know if you will even be able to buy the property. Obviously worth it when you do though."

The answer is pretty obvious.

But what isn't obvious is it highlights the very feeling of exasperation from first home buyers. House search can be expensive, very discouraging and demoralising. However, there are many ways to do this in a better, smarter and, often, cheaper manner. You can actually save over 80% of these unnecessary expenses, just by being experienced, realistic and pragmatic. Our buyers advocates will explain how to manage these costs smarter.

Let's start with answering the question. Should you do a Building and Pest Inspection and Contract Review for every auction you go to?

Why Should You Get a Building and Pest Inspection and Contract Reviewed Before Attending Auctions?

Doing a complete due diligence is a must before you buy any properties and bid at any auctions. This ensures you know what you are buying and understand if the property can do what you wanted to do. Building and Pest Inspections and Contract Reviews are not the only things you need to do, but these are the bare minimum you MUST do. You will need to be comfortable that the property which you might end up buying, is what you are looking for, suits your needs, and that there are no hidden nasty surprises.

This is particularly important at auctions in most Australian states, including Melbourne, because the properties you buy at auctions are unconditional, you cannot say "Oops! I made a mistake" and walk away. If you win the property at property auctions or under auction conditions, you have committed to an unconditional purchase and you have to go through and complete the purchase or you will suffer legal consequences.

To help you understand why a Building and Pest Inspection and Contract Review are important, we will discussion the importance of Building and Pest Inspection and Contract Reviews separately. Part 1 will discuss the importance of a Building and Pest Inspection, and part 2 will discuss the importance of the Sales Contract.

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Part 1. What is a Building and Pest Inspection?

Why is a Building and Pest Inspection Important?

From experience, between 80-90% of the properties will come with issues. Even brand new houses are not immune to problems. While most are minor, cosmetics issues, some could be major and structural issues, which can have safety and liveability implications.

For a more detailed discussion on why building and pest inspections are important, head over to this article.

What is a Building Inspection and how much does it cost in Melbourne?

A Building Inspection in Melbourne usually cost between $400 - $600.

What is a Pest Inspection and how much does it cost in Melbourne?

A typical Pest Inspection in Melbourne cost between $300-600.

What is a Combined Building and Pest Inspection and how much does it cost?

The typical cost of a combined building and pest inspection in Melbourne ranges from between $700 to $900, depending on location and size of the property.

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Part 2. What is a Real Estate Sales Contract?

Why is a Sales Contract Review Important?

A sales contract is typically around a hundred or more pages. It is a legal contract between the seller and the buyer. This legally binding document lists the important information about the property which a typical buyer would need to know, before they purchase. It is thus, critical to understand your obligations in the contract, before you commit to the purchase.

This article will help you understand what a contract review will expose and how to change the contract.

How Much Does a Contract Review Cost in Melbourne?

Solicitors typically charge between $200-$500 for a contract review, depending on the complexity of the contract. Most solicitors however, provides a couple of free contract review, when you engage their conveyancing services.

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Can You Reduce The Costs of Building and Pest Inspections and Contract Review?

This is a popular question with home buyers, and we can understand why. Typically, the basic due diligence of doing the building and pest inspection, plus getting the contract reviewed will cost the buyer between $1000 to $1500, per property. And if you need to do this for every property you intend to bid at auctions, the costs can add up quickly and it can be very significant.

But, there are some ways to mitigate or reduce these costs. The best way to reduce these costs is by:

1. having a good understanding of the property market, and

2. being selective with the property you chose to go for, plus

3. organising the inspections and contract reviews done in the most pragmatic manner.

Here's how you do it.

How to Reduce the Cost of Building and Pest Inspections and Contract Reviews

By being realistic and knowing the property will help you selectively shortlist the properties. Here are a few ways to help you reduce the costs of building and pest inspections and contract reviews:

1. Understand your budget. Know what is the absolute maximum you can afford for the property. Remember to factor in other purchase costs, such as conveyancing, building and pest inspections, sales contract reviews, stamp duties, and potential repair or renovation costs for the property.

2. Have a Good Understanding of the Realistic Property Value. If you are unable to ascertain this, get an independent appraisal for the property. Price quoted by the sales agents are usually for marketing purposes, and could have no resemblance of what the vendor wants or what the property can sell for. You will need an independent appraisal done to understand what the property can sell for and what other buyers will pay for it.

3. Inspect the Property Properly during Open for Inspections. In addition to whether you like the property, assess the property for obvious issues and other suspicious issues. If you know what you are looking for, cracks and leaks can tell you a lot about the condition of the property, and you will be able to know if the property is worth your time and money to do costly formal inspections and contract reviews.

Be Selective with the Auction Properties

Understanding the first 2 values will help you understand your chances of winning at the auction and decide if you should go ahead with preparing for the auction. Step 3 above will let you decide if you want to go ahead with the auction. Once you are satisfied with all 3, and you decide to go for the auction, get the property formally inspected for building and pest issues and contract reviewed.

With enough experience, you will realise only 2 to 3 properties will make the mark, out of every 10 properties you shortlist. Yes, for a typical buyer, up to 80% of the properties which they are interested in, are usually not suitable and a waste of time.

What if You Do Not Know How to Prepare for Inspections and Auctions?

If you are inexperienced or not sure what to look for, our Melbourne Buyers Advocates and Buyers Agents can help with your purchase in Melbourne or Victoria. We've been property investors for over 20 years and in the real estate buying business for over 10 years. Each of our buyers advocates are builder-trained and typically visit and inspect between 400-500 properties annually. Yes, we inspect about 10 properties each week, and we understand not many people will buy enough properties to know what to look for and how to prepare yourself for any property purchase and auctions. If you need some experienced guidance, our Buyers Advocates or Buyers Agents in Melbourne are happy to assist.

Our buyers advocates are builder-trained licenced real estate agents who purely assist buyers. When we conduct our on-site inspections during open for inspections, we assess and note the property for visual building and pest concerns, and provide you with our opinion of the property condition plus an independent appraisal of the property value. This independent appraisal is critical in giving you an good idea of what other buyers will pay and bid at the auction, giving you an added layer of confidence at the day of auction. You cannot rely on the price guides and statement of information from the sales agents, as they are usually used for marketing purposes, and it it not common the prices mentioned bears no resemblance to the price they will be sold for. This article will explain why these price guides cannot be relied on.

How Much Can Buyers Agents Help You Save?

Many usually ask how much can a buyers agent save them?

On average, between 15-30 shortlisted properties for each of our buyers are disqualified because of budget mismatch or serious concerns with defects noted during our on-site visits. Most buyers, however, will usually shortlist these properties and perform the building inspections and contract reviews without realising they would be unsuccessful in buying them.

With our buyers agents or advocates on your side, we would help you understand the true value of the property, before you attempt any inspections or reviews. This critical step typically prevents our buyers from paying for unnecessary inspections and reviews, ie, a total savings of between $15,000-$30,000+.

That's where the value of experienced buyers agents come in. Our experience and skills help you avoid unnecessary costs.

In addition to helping you independently understand the value of the property, we will strategies with you to bid, negotiate or plan our attack to help ensure you buy the property at the lowest possible price, plus avoid unnecessary costs such as needless property inspections and contract reviews.

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