The Value of Due Diligence
Buying property is usually the most important investment any person will make. Getting what you pay for and making sure that everything relating to that property is correct can save you thousands of dollars. Due diligence is the legal term that is given to the process in which a prospective buyer of a property investigates all aspects of the property to ensure that they are getting what they pay for.
A common misconception is that due diligence is a process that is undertaken by big property investors who are spending millions of dollars on their property. The truth is that every investigation that a property owner does in relation to the property that they are buying is a due diligence investigation.
Why is it important?
All too often we see buyers of property not get what they originally purchased. They buy a property and do not investigate all aspects of it, including whether all of the improvements on the property have the required local council approval or whether there are no encroachments. Due Diligence will allow a prospective buyer of a property to be to ensure that they:
- Are getting what they are paying for;
- Know all aspects of the property;
- Do not have any surprise costs or problems that can be reasonably discovered from the due diligence investigations.
When are due diligence enquiries conducted?
More often than not the due diligence process will begin before a buyer signs a contract with it; the process begins with the physical inspection of the property. The majority of the searches and inspections occur after the contract is signed and can include:
- Building and pest inspections – to ensure that the building does not have any obvious structural problems or pest problems;
- Finance applications – to ensure that the buyer can obtain finance to purchase the property;
- Independent valuations – to ensure that the buyer is satisfied that they are not paying too much for the property;
- Searches of council records including ensuring that all of the improvements on the property that require council approval however the required final approval in place;
- Survey of the property to ensure that there are no encroachments;
- Where the property is part of a body corporate, review of the body corporate records to make sure that there are no known problems with the property that are recorded in the body corporate minutes; and
- Other government searches including of the contaminated land register, to ensure that the property is not contaminated, the Department of Main Roads to ensure that the department has no interest in the property and other searches.
There are many different investigations that a buyer can undertake of a property and this is just a short list of the main investigations performed by normal buyers of property.
What needs to occur for a buyer to be able to do their due diligence investigations?
The standard REIQ contract and other contracts used in Queensland do not usually give a buyer much ability to undertake due diligence enquiries other than building and pest and finance standard conditions. If a buyer is concerned and wants to undertake further investigations then they need to insert special conditions that can cover these aspects of the purchase and allow the buyer to undertake these additional investigations.
A buyer should always be satisfied with a property to ensure that they are getting what they are paying for. Streten Masons can assist with the review and drafting of clauses that will allow buyers to undertake these investigations. If you require any assistance in this regard please contact Jeremy Streten on 07 3667 8966.