Hideous Building Report- Pull out?

[jodes92]

Hi Everyone!
Your help would be greatly appreciated!

I recently put down a .25% deposit on my first IP and undertook the relevant checks (building, strata, pest, conveyancing). The reason I put down the .25% deposit, is basically because I would rather have the property secured, then waste money on checks and get gazumped. Anyway, my advice relates to the builing inspection.

The apartment is small, ex housing commission and old (approx 30-40 years). I knew it needed a little bit of work and had planned to do cosmetic things including new floors, paint, kitchen and bathroom.

The report came back however with a mountain of "potential" issues including:
- vinyl floor needs replacing.
(I knew this but what I didn't realise is it may have lead or asbestos which could cost thousands to remove)
- lots of internal issues including new tiles, new appliances etc. This is also fine as I had included replacement of these things in my budget.

The things that concern me the most are building issues. Although the building is structurally sound and pest free, there are heaps of issues including potential breaches of fire and OHS requirements, high potential for termites to come in the future, lots of work needed fixing external walls, carport etc. Although nothing is BROKEN, the potential for it needing to be fixed in the near future is high.

The thing that concerns me the most, is that although the majority of these things come under strata, the sinking fund for this strata plan is only around the $25k mark for approx 20 apartments- not nearly enough to cover even a small amount of these potential problems- hence perhaps a special levy would be raised?

Should I pull out or is this something that all building reports will mention?

 

[Propertunity]

I recently put down a .25% deposit on my first IP and undertook the relevant checks (building, strata, pest, conveyancing). The reason I put down the .25% deposit, is basically because I would rather have the property secured, then waste money on checks and get gazumped.

That is a very smart move IMO, and one that I always do myself & also recommend to my clients.

The thing that concerns me the most, is that although the majority of these things come under strata, the sinking fund for this strata plan is only around the $25k mark for approx 20 apartments- not nearly enough to cover even a small amount of these potential problems- hence perhaps a special levy would be raised?

The bottom line is that there is only about $1K in the sinking fund for each unit - this is what would be described as "thin". You are right to be concerned. Yes, a special levy may be raised to boost the sinking fund to an appropriate level to handle future issues identified.

HOWEVER, there are 25 unit holders. It only takes a one-off special levy of $2K (say) to raise $50K, $4K will raise $100K. You can do a lot of work for $100K. If you allow for this in the purchase price - heck, negotiate $5K off the deal you were previously happy with, then I don't see a problem with proceeding to purchase. This would be called gazundering and is much better (for you as a purchaser) than being gazumped.

 

[The Y-man]

Also keep in mind a lot of building reports are somewhat pessimistic to cover their liabilities in case they missed something, or somthing develops.

For example, potential for termites coming in seems to be a standard clause unless there is an actual infestation found....

If the report really looks scary, you can also flash a copy of it infront of the agent and use it as a negotiating tool ("Look, it's going to cost $x to fix this, $y to fix that, etc etc.... how about you take $50k off the asking?")

The Y-man

 

[Peter_Tersteeg]

Your report hasn't flagged anything that would make me really worried. The builders reports I've seen were all very pesimistic. High potential for termites describes most buildings in Melbourne and Sydney. Old things that might break down are generally why you would or wouldn't pay a premium for the property.

If the vinyl floor may lead to asbestos, you need a straight answer on this. Is there a problem or not. This is why you pay for the report, not for broken tiles.

Most building reports are overly pesimistic because is something does go wrong and they haven't mentioned it, they could be liable.

By all means use the report as a negotiating tool, but I wouldn't be too concerned with it.

 

[twobobsworth]

out of interest how much is the unit and what are the current strata fees? Has a 10 year sinking fund plan been done?

 

[jodes92]

Thanks for everyone's responses!

Twobob- the unit is $162k and yes there is a ten year sinking fund. Strata is $400/qrt with approx $250 going to the sinking fund from memory

My biggest concerns are the non-compliance with fire and OHS standards- is this something that a lot of old apartment complexes are potentially breaching?

How easy is it to test for asbestos and lead?

 

[handyandy]

Thanks for everyone's responses!

Twobob- the unit is $162k and yes there is a ten year sinking fund.

My biggest concerns are the non-compliance with fire and OHS standards- is this something that a lot of old apartment complexes are potentially breaching?

How easy is it to test for asbestos and lead?

Non compliance would apply to 80% (or more ) of the older 20+years buildings.

The non-compliance with fire reg could be that the building has been standing for a whole while without these particular regs and the regs have now been updated but not implemented in the building.

I would think this would included door handset to close to the frame - should now be 127 mm back. The fire door on some units have had extra locks installed which now render the fire door non complying. No emergency lighting in the hallways. No smoke alarms in the hallways.

We have been involved in the rectification a number of times and the cost was about $1000 per unit. This cost increases substantially ( X3) if you don't hunt around for separate pricing and let a 'specialist' come and do the whole job.

Re OH& S if they haven't done a report then you don't know what you have to fix. Otherwise if they have done a report they had better fix all the areas of concern. Cost unknown as scope unknown.

Again determine the cost and get an equivalent discount on the unit.

Cheers

 

[Jamie M]

Also keep in mind a lot of building reports are somewhat pessimistic to cover their liabilities in case they missed something, or somthing develops.

Yep, that's been my experience. Give the inspector a call and have a chat - you may find their verbal report to be a little rosier than their written one.

Cheers

Jamie

 

[Ed Barton]

Hi Everyone!
Your help would be greatly appreciated!

I recently put down a .25% deposit on my first IP and undertook the relevant checks (building, strata, pest, conveyancing). The reason I put down the .25% deposit, is basically because I would rather have the property secured, then waste money on checks and get gazumped. Anyway, my advice relates to the builing inspection.

The apartment is small, ex housing commission and old (approx 30-40 years). I knew it needed a little bit of work and had planned to do cosmetic things including new floors, paint, kitchen and bathroom.

The report came back however with a mountain of "potential" issues including:
- vinyl floor needs replacing.
(I knew this but what I didn't realise is it may have lead or asbestos which could cost thousands to remove)
- lots of internal issues including new tiles, new appliances etc. This is also fine as I had included replacement of these things in my budget.

The things that concern me the most are building issues. Although the building is structurally sound and pest free, there are heaps of issues including potential breaches of fire and OHS requirements, high potential for termites to come in the future, lots of work needed fixing external walls, carport etc. Although nothing is BROKEN, the potential for it needing to be fixed in the near future is high.

The thing that concerns me the most, is that although the majority of these things come under strata, the sinking fund for this strata plan is only around the $25k mark for approx 20 apartments- not nearly enough to cover even a small amount of these potential problems- hence perhaps a special levy would be raised?

Should I pull out or is this something that all building reports will mention?

call the inspector and have an off the record conversation. would the inspector buy it? every building report, especially on a place this age will come back with problems.

 

[RumpledElf]

Old vinyl had asbestos in the glue holding it down or the underlay or something, its a problem if you remove it.

But we're talking pretty much ALL vinyl of that era, not just the one in YOUR apartment, so its a known quantity for anyone who deals with that kind of thing and the actual cubic metreage of that vinyl for disposal would be really small so won't add much to disposal costs. Compare that to if you were demolishing a fibro extension and were creating a few skipfulls of asbestos laden rubble.

As to termites, old buildings didn't have termite mesh in the foundations. Not that termite mesh is a 100% guarantee in a brand new building either, it could have a hole in it, or someone could have added a deck or something near the house.