What is a pre-purchase inspection report and how much does it cost?

Your mortgage finance is all ready, you’ve done your market research and you’ve been looking around at properties for months. Now you’ve finally found a house or apartment you’d really like to buy and you’re ready to make an offer or bid at the auction.

But there’s one final hurdle: the pre-purchase inspection reports. Are they really necessary, or are they an extra expense at a time when you’re feeling really squeezed for cash that you could well do without?

What is a pre-purchase inspection report?

There are a number of different types of reports you can have done on a property before you attempt to buy it.

A building inspection will look into the state of the home you are thinking of purchasing, examining the roof, the floors, the walls for any damage, deterioration, cracking or rising damp, the plumbing and the electrical wiring.

A pest inspection will look for any evidence of an infestation, most usually termites or termite damage.

A strata inspection, if you’re buying an apartment or strata townhouse, will check on the finances and the minutes of the owners corporation running the building, to warn you of any problems in the building, or the likelihood of issues in future.

There are other inspections that might be necessary, depending on the age, and type, of property, including an asbestos inspection.

Why should buyers get a pre-purchase inspection report?

In his 34 years of inspecting buildings, Dan Drexler has witnessed some heartbreaking sights. One of the hardest was a woman who had a building inspection done after she’d bought her Sydney house to check on any repairs that might be necessary.

“When she saw the report she burst into tears,” says Drexler, the owner of NSW Master Building Inspections. “It was a disaster for her – the whole roof was eaten by termites and would cost tens of thousands of dollars to fix. She said she probably would never have bought the house if she had known beforehand.”

Such tales are, sadly, all too common. If you don’t have inspections done before you buy, you could be up for a whole world of unexpected expenses.

“Knowledge is power,” says another industry veteran, Jerry Tyrrell, founder of Tyrrells Property Inspections. “You might think you’ve got a bargain, but then you end up facing $300,000 to $400,000 in repairs, and suddenly you realise you’ve bought a lemon.

“I think if you buy well the first time, then you’re in the market, you own a good property and you’re more likely to have a successful financial life. But if you buy something that has major issues, it could take you a long time to recover.”

It’s important to resist an unscrupulous agent who might be rushing you into a quick decision, who might assure you that no reports are necessary and who helps you get swept up into a tide of emotion – and urgency – about buying.

“After you’ve bought and moved in and then problems start occurring, that’s too late,” says Drexler. “It’s always a case of buyer beware.”

What to look for in a pre-purchase inspection report

The best report should list any defects clearly and assess the likely cost of repairs. It should be thorough and go through every aspect of the property you’re thinking of buying.

It can be hard for a potential purchaser to understand the magnitude of problems so it’s important that the report gives a strong indication.

“Most homes will have some problems, but those problems can be quite minor or major,” says Rhys Rogers, the CEO and founder of Before You Bid. “Issues like rising damp or termites can be very costly to repair so you really need to know what you’re up for before you buy.”

Avoid companies, or inspectors, who issue reports filled with incomprehensible jargon, have pages of waffle and are mostly disclaimers and photographs, advises Tyrrell.

“We’ve seen reports that are padded out like that and never drill down into issues,” he says. “You can receive a wad of paper and no one quite knows what’s in there. You need to know what’s wrong and what it will take to fix.

“For instance, you might have a fire door that a previous owner has put a doggy door in. That’s a major problem in one way. But it’s something that’s easily fixable with a new door.”

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What is a strata inspection report?

With strata, there’s another layer of complexity at stake. As well as needing to know whether your individual apartment or townhouse is defect-free, you also need to know that the building it’s part of has no major problems.

Any building inspection should examine the unit itself as well as the building’s facade, foundations, roof and other common areas that, as a strata owner, you’ll have to share in the cost of maintaining.

In addition to that, a strata inspection needs to go through the owner corporation records to check on all the documents and minutes of the past several years to check the building isn’t under-insured or if there are any claims being made by, or against, the property, as well as issues, potential issues or disputes.

“You need to know how the building is managed, and how it’ll manage any issues like fire orders or elevators, which can be very expensive, and if it has the funds to pay for it,” says Drexler. “If a building strikes a $40,000 special levy, then you have to pay it.”

“You also want to know if there’s harmony between residents. Do people like each other? With strata, the other residents are almost your housemates. So is it going to be a good place to live?”

That strata inspection doesn’t negate the necessity of a building inspection too, though.

“We know that if there’s a problem, like concrete cancer, the owners might not record it because they don’t want to jeopardise the value of their units,” says Tyrrell. “There have been buildings riddled with it, but the owners have been concealing it in their records.”

How much do pre-purchase inspections cost?

Costs can vary wildly, but when assessing which company you’ll go for, you have to consider that sometimes you get what you pay for. An extremely cheap report might end up not worth the paper it’s written on – and cost you a huge amount in the long term.

Generally building inspections tend to be about $450, pest inspections $400 or the both together $550. Strata inspections alone could be around $400.

There are ways to reduce the cost, however. Some vendors of properties have reports done in advance to supply free to potential purchasers.

Alternatively, many companies who carry out inspections list the properties on their website that they’ve already written reports on, so you can buy them more cheaply than if you were to commission your own. You could also ask the real estate agent if they know if any company has previously written a report.

There are also some businesses who share the cost of reports among buyers and sellers, like Before You Bid, which was one of the first in the market to do so. They have a range of different report share-cost models, with one having successful buyers paying more and the unsuccessful less.

“It means you can have a report at a cheaper cost and bid with confidence,” says Rogers. “Then, if you miss out, you’re not wasting so much money.”

The company Australian Property and Building Inspections advises that you can always make an offer on a property for private sale subject to a satisfactory report afterwards. If problems are found, they can be used to re-negotiate the price or cancel the contract. Make sure, however, that you’re clear beforehand about what will constitute a satisfactory result.

And you might always recover the cost of the report afterwards in other ways, too. Drexler once filed a report to a buyer showing $100,000 worth of work was necessary to the property. “So the buyer presented the report to the owner who agreed to give him $80,000 off the price as a result, which constituted 10 per cent.”

Can buyers rely on pre-purchase inspection reports provided by the vendor?

Over the past five years, there’s been a massive surge in the number of reports supplied by vendors who have an interest in making sure no potential buyers are put off by the expense of having reports written. Ninety per cent of the 40,000 reports filed in 2020 by Before You Bid were initiated by vendors.

Buyers should judge each report on its merits, and ensure the company or consultant compiling the report is experienced, reputable and has supplied contact details so buyers can get in touch to discuss the findings.

Also make sure the consultant who’s written the report has insurance in case you buy the property, discover huge problems and want to sue later to recoup costs.

If you are the successful purchaser, it’s a good idea to have the report transferred to your name for insurance purposes.

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