August 2016

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Due diligence is a must

Buying a property is a major investment. A due diligence investigation can identify expensive problems. It is important to know what to focus on, and not get sidetracked by the small stuff.

Buyer due diligence

A builders report can identify repair and maintenance issues.

From the 1990s to mid-2000s, poor skills and materials coupled with inadequate attention to the building code lead to around 89,000 leaky buildings. The signs are not always obvious, which is why you should employ a building professional.

Older houses also need to be investigated for possible problems.

For example, insurance companies will refuse full cover where wiring is not up to standard. This can be an unwelcome discovery prior to settlement because banks require confirmation of insurance before settling.

A LIM report will provide information such as building consents issued, approved plans, contamination, flood risk, and the location of services. A LIM doesn't often identify adverse information on a property, but can save you money when it does.

A registered valuation is often required by banks, and provides an objective comparison with the asking price.

Finally, checking the title to the property is important. You need to know if a building crosses a boundary, or if there are any restrictions on land use. If you are buying to subdivide, you need to know what you can do as of right, and what conditions need to be ticked off. Your lawyer can help you with these questions.

Seller due diligence

Due diligence can bring up issues that sellers must deal with during the sale process.

Issues raised in builders reports can come as a surprise, and usually lead to a request for a reduction in price. Depending on the property and sale method (eg, auction or tender) some sellers choose to obtain their own pre-listing reports to include an information disclosure package.

Regardless of which side of the transaction you are on, being informed is the key to making the right decisions. Talking to your lawyer first can save you time and grief.