When a dilapidated terrace on Windsor Street, Paddington, went on the market late last year, the buzz among buyers hoping to pick up a grand old piece of eastern suburbs real estate was extraordinary.
More than 400 groups went through the four-bedroom house and 50 contracts were issued.
It made local headlines when it sold for $1.895 million, $300,000 more than the reserve.
What went unreported, however, is that not one pest and building report was commissioned on the house that had no electricity, an unstable second storey and falling plaster.
“I guess buyers didn’t need a report to tell them this place needed work,” says the selling agent, Susannah Anderson, of Di Jones.
Instead, many of those buyers opted to bring a trusted builder or architect to advise them, forgoing the pre-purchase inspection report for what is described by some as no more than a wordy exercise in avoiding litigation.
At a time when some agents report dramatic increases in the number of Sydneysiders buying without a pest and building report – often to save thousands of dollars on houses they never get to buy – there are also state government calls to make it compulsory for vendors to include such a report with the contract of sale.
It is a proposal with plenty of merit, according to some, and none according to others.
In the absence of reform, some agents say the number of buyers who forgo the expense of a pre-purchase report will continue to rise.
“When I started selling real estate 15 years ago, a good 70 per cent of buyers got a pest and building report but that’s reversed itself to the point that about 70 per cent now don’t bother,” says Shannon Whitney of property agency BresicWhitney.
Admittedly, many of those buyers either plan to renovate extensively anyway or have a friend who is a builder who will check out the property for them, he says.
A cautionary tale
Matthew James of Crows Nest wasn’t going to get a pre-purchase report on a three-bedroom Annandale terrace, which the agent assured him had been renovated with no expense spared.
“The agent kept saying, ‘There’s nothing wrong with it’ but then Stuart [Jones, of buyer’s agency Rose and Jones] insisted I make the offer conditional on a favourable building report.”
Ultimately, James agreed, offering $965,000 for the house and using the cooling-off period to get a $600 inspection on the property.
“The list of problems was long and serious,” he says. “For starters, the external walls were not well sealed, all the fittings were cheap and the chimney wasn’t sealed properly.
It might have had granite benchtops and Smeg appliances but scratch the surface and there was a lot wrong with it.”
He pulled out of the deal and such tales are good reminders of the recommendation to get a pest and building report before buying property.
More than just protect the buyer from an expensive mistake, such reports can help negotiate a lower price, says buyer’s agent Stephen Smith of SydneySlice.
“Just as the agent’s job is to talk the property up, buyers need someone to dig around in the roof and under the floorboards to give unbiased feedback on what the property is really like,” he says.
Too much information
And yet for all the horror stories revealed by such reports, there are just as many tales about reports being too convoluted and overly negative, rather than an objective property assessment.
As the president of the Real Estate Institute of NSW, Wayne Stewart, says: “Often these reports read as a litany of disasters that are not there.
Evidence of termite activity is left at just that and the buyer is left wondering, so are the termites still there? Is the house about to fall down?
Or is it just a few marks on the floorboards from sometime in the 1940s? And the sale falls through based purely on the unknown.”
And in a climate such as Sydney’s, on what pest controllers call the country’s termite belt, where much of the most expensive real estate is more than 100 years old, that makes for widespread confusion.
None of which is news to Jerry Tyrrell, a property inspector with more than 30 years’ experience and the founder of Tyrrells Property Inspections.
“The purpose of the pre-purchase advice is to tell a buyer of any serious unexpected issues,” he says. “The trouble is, you would be lucky if 10 per cent of building consultants give accurate coverage of that. Instead you get four to six pages of silly disclaimers.”
Enter the former police minister, Matt Brown, who was at the centre of the infamous underwear dance party in 2008.
With the assistance of the Land and Property Management Authority, he is conducting a review into the issue of vendor-supplied pest and building reports and is expected to present his findings to Cabinet by the end of the year.
The Real Estate Institute of NSW is in favour of reforming the system to make it compulsory for vendors to supply a pest and building report with the contract of sale, as long as buyers are also required to buy the report with the property. (If buyers do not buy the report they retain no contractual obligations from the inspector and can’t sue if it is in breach of contract.)
The Law Society of NSW is not convinced compulsory vendor-organised inspections are the way to go. “Why tinker with a system that’s working as it is by making it more expensive for vendors, who will only pass on that cost to buyers, many of whom will need to pay for a second report anyway to ensure they are making an informed decision?” says society president Mary Macken.
Tyrrell agrees: “There is no independence when these reports are provided by the vendor. I think this is a good idea but it won’t work in practice.”
Mandatory pest and building reports have been part of the sales process in the ACT since 2003 and the president of the ACT Real Estate Institute, Michael Wellsmore, has no regrets.
But, interestingly, he is critical of the standardised format of the reports used there, whereby inspectors simply tick a series of boxes, without in-depth explanations or warnings.
“Personally, I found the old reports more detailed and reliable,” he says. “If I had an issue with a property I would go and get a full inspection report rather than rely on these.”
Tyrrell hopes standardised reports aren’t adopted here. “A dumbed-down report is a waste of time,” he says. “What you need is to establish best-practice guidelines for inspectors.
Get rid of excessive disclaimers and fear of litigation. Even our guys will at times tend to be wordy and I say, ‘Make a call on the issue.’ Does the finish in question have a service life? If so, say what it is. Is the damp a real problem or just an eyesore that a bit of paint will fix?”
The couple who did a report
Suzie Pismiris and Simon de Marchi’s plan was to buy the worst house in the area’s best street. The idea being to renovate and capitalise on it later, not to purchase an expensive rebuild that was to someone else’s taste.
And so the flight attendants never questioned whether they would get a pest and building report when they bought their two-bedroom semi in Govett Street, Randwick North, through Daniel Cachia, of GoodyerDonnelley.
It was $500 well spent, according to de Marchi, because it let them know just how much of a renovation job they were buying.
The couple had planned to open up the back to extend the living area, leaving the two bedrooms at the front largely untouched.
But, de Marchi says: “The report showed we couldn’t leave the front bedrooms out of the plans because there was damp in the walls and termite damage in the floors that needed replacing.”
Thus informed, the couple still wanted to buy the house, happy that their due diligence had paid for itself in the knowledge of what needed renovating in their new house.
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