Risks of not doing B&P inspection

O

ourhouse

Hi all,
I wasted money on B&P inspection of a property earlier which was underquoted at 300K+ auction and come the auction day, reserve was known to be 350K. Had I known the property was outside my budget, I would not have spent $650 on B&P in the first place.

Having burnt my hands, now I am considering not doing B&P on another auction property. I know the risks but what I dont know is - how does it impact the finance.

I can live in a house that has structure problems/pest problems, because I can get them fixed even if they cost $10K. But my worst nightmare will be obstruction in Finance because I'll be bound in an unconditional contract.

So my question is
1. What objections can a home insurance company raise against me not doing B&P inspection. Does the insurance company need latest B&P report to insure my house. If not, how will they know what problems the house had.
2. What objections can bank raise against me not doing B&P inspection before relinquishing the funds
3. What other risks are there of not doing B&P, if the property looks all nice and good. Its 25 years old house.


Cheers
 
The valuer (bank's assessor of the property), doesn't care what the results of a B&P are. They'll make comments on the state of the property and I've seen plenty of valuations that have stated the property is in 'very poor condition'. I doubt a B&P would change your decision in such a way that it effects how the bank will view the property.

An insurance company won't visit the property either.

The primary risk is that there might be repairs required that you were not expecting. Quite a few clients have withdrawn from a sale because the property failed a building inspection.

Most agents won't bat an eyelid at a B&P clause. The only one's I've seen who have a problem with it, know there's something significantly wrong with the property.

Most structural repairs cost a lot more than $10k.
 
ourhouse said:
I can live in a house that has structure problems/pest problems, because I can get them fixed even if they cost $10K. But my worst nightmare will be obstruction in Finance because I'll be bound in an unconditional contract.

So my question is
1. What objections can a home insurance company raise against me not doing B&P inspection.
Click to expand...
None.

ourhouse said:
Does the insurance company need latest B&P report to insure my house.
Click to expand...
No.

ourhouse said:
If not, how will they know what problems the house had.
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They could not care less. Pest damage is not an insurable event. Old damage is not covered by insurance.

ourhouse said:
2. What objections can bank raise against me not doing B&P inspection before relinquishing the funds
Click to expand...
None.

ourhouse said:
3. What other risks are there of not doing B&P, if the property looks all nice and good. Its 25 years old house.
Click to expand...
Risk is that it may be structurally unsound & / or riddled with termites. It is false economy to save a few hundred dollars when you are spending $100K's of borrowed money.
 
Thanks for replying.

1. Doesn't the bank need home insurance before releasing funds. If yes, if insurer is least bothered about building and pest, how does this work

2. Say 3 months after I insured my property a minor earthquake in the area. Even though I know my property might be unaffected, I lodge a claim with the insurer that the jolt has misaligned the beams/structure, and ask them to fix it. How will insurer know if it was pre-existing if there was no B&P report

3. Say minor floods came around and there was stagnant water around my house. I lodge a claim saying the moisture from the floods has caused termites (even though termites might already be there before I took the insurance). Again how will insurer know if it was pre-existing if there was no B&P.

4. House is owner occupied from many years. What are the odds that house may have major hidden problems (despite family knowing it and risking their lives)
 
ourhouse said:
Thanks for replying.

1. Doesn't the bank need home insurance before releasing funds. If yes, if insurer is least bothered about building and pest, how does this work

2. Say 3 months after I insured my property a minor earthquake in the area. Even though I know my property might be unaffected, I lodge a claim with the insurer that the jolt has misaligned the beams/structure, and ask them to fix it. How will insurer know if it was pre-existing if there was no B&P report

3. Say minor floods came around and there was stagnant water around my house. I lodge a claim saying the moisture from the floods has caused termites (even though termites might already be there before I took the insurance). Again how will insurer know if it was pre-existing if there was no B&P.

4. House is owner occupied from many years. What are the odds that house may have major hidden problems (despite family knowing it and risking their lives)
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Hi Our House

Its a common problem with REAs underquoting the auction base price

Its a PET HATE of mine for exactly the reasons you know.

You cant really go and buy a place without a P&B..........

t
arolf
 
ourhouse said:
Thanks for replying.

1. Doesn't the bank need home insurance before releasing funds. If yes, if insurer is least bothered about building and pest, how does this work

2. Say 3 months after I insured my property a minor earthquake in the area. Even though I know my property might be unaffected, I lodge a claim with the insurer that the jolt has misaligned the beams/structure, and ask them to fix it. How will insurer know if it was pre-existing if there was no B&P report

3. Say minor floods came around and there was stagnant water around my house. I lodge a claim saying the moisture from the floods has caused termites (even though termites might already be there before I took the insurance). Again how will insurer know if it was pre-existing if there was no B&P.
Click to expand...

All of the above would amount to fraud...........and insures dont cover termites \.

Just because the REA is an ethical numbnut doesnt mean we need to resort to the same level, this will not serve you

t
arolf
 
As others have said, considering that a B/P is likely to cost you less than 0.2% of the purchase price, you'd be the numnut not to have one done. I know you've spent $$$ and missed out, but that's life in auction land. Do you really want to risk so much? You need to consider these costs as part and parcel of doing business in the world of real estate.

An alternative path would be to submit an offer before auction, being prepared to walk away if they decline, and save yourself the hassle of outlaying $$$. Underquoting still exists, but then again so do silly buyers who pay WAY over the top. We had a recent example where the guide was $900K+ and the sale price was $1.28m. Our clients wanted us to look (their budget mid $900Ks) but our research told them they didn't have a chance, so they didn't waste their time or money. Mind you, even we didn't anticipate a price at a further $180K over our top estimate....!
 
building and pest is all part of the process, and due diligence. not doing it isnt going to kill the deal - but will add extra uncertainty.

You could do a version of a building and pest inspection if you know what to look for, but would not be as good as a professional version.
 
Thanks all for replying. In general I understand there are risks of not doing building inspection but lets talk about a specific scenario.

Please allow me to play devil's advocate and challenge the conventional wisdom :D I will start by saying, I am a total noob, don't know anything about home building and haven't bought or sold a house earlier.

1. The norm among fellow forumers seem to be to always conduct B&P before buying. However, having talked to at least 10-15 agents and been to at least 10-15 auctions, I have rarely been told by an agent on the auction day, that someone has done a B&P. Personally know few guys who have bought properties without B&P, because they were less than 10 yrs old and looked new. It looks like the norm is not to do building and pest. Agent concealing information from me, vested interest, may be. But is everyone lying, just confused:confused:

2. Having read this article [What building reports dont cover]
I would like to know the value of a building inspection report. As described, it skips everything right from gutters to structure to electrical wirings.
A. What can such a seemingly shallow report unearth from a house that looks new, being lived into from few years by the owner itself (no one lives with known dangers). Any known examples from your experience where the report did marvel in such a scenario, would like to hear.

3. Having established from the previous posts, that not having a building inspection is not a 'Finance breaker' (which is my paramount concern atm). Apart from providing an indication to the buyer about any expenses to be incurred, does building report play any other role as well. Doesnt seem like its an input to any other authority.

4. Again want to clarify, can the insurer refuse to insure the house on any grounds (which can become a Finance breaker consequently). Trying to understand how do the insurers insure really worn out properties, how do they know what is pre-existing,

Thanks for your attention.
 
It's true that building inspection reports are not all-encompassing, and I don't think they should be. If you wanted to do all those reports to make it all-encompassing and totally comprehensive, then it would cost you even more at the outset.

I think that building inspection reports are intended to give you a basic examination of the quality of the property. If there are found to be problems from the Building inspection report, then you can get more reports and analysis done, such as a structural engineer or a plumber or an electrician, etc.

Personally, I think getting B&P inspections are worth it. From my own experience, I've had times as well when I've paid for them but never went through with actually buying the property. It can be frustrating when this happens, but I think overall it is worth it, especially from a liability and responsibility standpoint.
 
i didnt get one done for my house when i bought it and its aobut 50 yrs old
but had a good look around
its double stone, wasnt repaired around the outside at all, on good soil, the inside had small cracks along the window lintels (normal for the stone and at 50yrs old if thats all thas wrong its pretty stable) a few basic repairs seen on the inside.
wiring had been changed from the old black wiring to the new white stuff. so no big problems from what i could see
 
I came across some common sense the other day, rare in the real estate world I know. I'm not sure why it isn't done more often.

A house I was interested in viewing was going to auction. The agent said that they could send me the B&P reports if I signed an agreement to refund the vendor for the cost if we were successful.

Basically the vendor had the reports done, but anyone buying would reimburse via settlement. I've often thought this would be sensible especially with auctions. If people don't trust the process then they can still arrange to pay to have their own reports done.

By the way, ... the property was in NSW.

Mystery
 
Mystery,

The issue with that is the vendor getting multiple B&P's and providing only the most favorable.

I've recently spent money on B&P's for auctions and wondered if I should offer to sell copies for cash to other potential bidders on auction day immediately before the auction starts to recoup my costs :)

Jason
 
jrc77 said:
Mystery,

The issue with that is the vendor getting multiple B&P's and providing only the most favorable.
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Yes, I suppose that could be an issue, but at the same time even the people you employ for building and pest reports could be rubbish and miss a heap of defects. A lot of the time it's crossing your fingers and hoping you have someone dedicated.

It just doesn't seem right for say 10 parties to all go through the cost of building and pest inspections in preparation for an auction, when only one can win. I know it's part of the process, but surely there has to be a better way, but I take your point.

Mystery
 
To the OP, most reserve prices are set just before the actual auction.
How can a REA know what a property will go for at a public auction? Did you and the other buyers let him/her know what you were willing to pay?

An auction is like an old west stand off, you as a buyer want to know the lowest price you can get it for, the owner wants to know how much you will pay, you are both waiting for the each other to draw....
Dont get pissed coz it sold for more than you thought.


I would recommend a B&P as a general rule. If you want to not waste money but still get one done, make an offer prior subject to b&p, but make sure the b&p date expires before the auction date. That way if your offer is accepted, you can do the b&p. if favourable you buy, if not, the property can go to auction and be bought by someone else. You may even be able to sell back your unfavourable report to another buyer etc.....
 
I sell real estate for a living and it surprises me how many buyers, when buying a near new or new property don't get a building inspection, in my experience newer homes are the worst. Lazy tradies/builders unsupervised during construction taking short cuts to save a dollar. For the properties I sell, I'll personally sit through each and every building inspection and it's the new/newer builds that make me nervous.
 
eKwatee said:
... in my experience newer homes are the worst. Lazy tradies/builders unsupervised during construction taking short cuts to save a dollar. For the properties I sell, I'll personally sit through each and every building inspection and it's the new/newer builds that make me nervous.
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Great point eKwatee, the new builds could be a real can of worms even if there is builders guarantee in place (big headache to chase people for money after the fact or if the builder has gone bust).

If you know what you're doing and bought fair few houses then you can probably detect 80% of faults from your own inspection. But I would still agree with others and do recommend B&P inspection to all my clients. Cost of doing business and a risk control mechanism.

It is also a good tool to negotiate further price reduction with vendors if done during cooling off period (here in SA) :)
 
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