Buyer Beware – What You Need to Know About the Contract You’re Signing

Buyer Beware – What You Need to Know About the Contract You’re Signing

Following countless hours of scouring property websites, local newspaper and attending home opens you finally stumble upon your ‘castle’, the place that you would like to call home. You have fallen in love and anxiously wait for the crowd to disperse so that you can approach the Real Estate Agent and submit your offer. You inform the agent that you would like to make an offer slightly under the asking price, (common practice), and they produce the standard REIWA Offer and Acceptance form for you to complete and sign.
You’re no legal expert but everything appears to be in order and the Real Estate Agent advises you that the sale will be dependent on Building and Timber Pest Inspections anyway. Later that evening your telephone rings and it is the Real Estate Agent informing you that your offer has been accepted. You are on cloud nine and with champagne glass in hand congratulate yourself on your remarkably astute dealings of the day!

The property purchase tale described above would be typical of 90% of transactions that occur in Perth, WA – so where has the purchase gone wrong?

The first point to consider is that the purchaser is being advised by an Agent that is legally bound to represent the seller/vendor and is also paid by them. Secondly, they have committed themselves to a contract in which the wording is owned by the Real Estate Institute of Western Australia (REIWA) which is the peak industry body representing the interests of Real Estate Agents.

There is no cooling off period in WA, consequently with the Offer and Acceptance contract signed by both parties it immediately becomes legally binding and is usually weighted in the favour of the seller so that there is very little chance of the contract collapsing.

You, the buyer, may only withdraw from this contract if the bank will not provide finance or your building/timber pest report reveals a major structural defect as defined in the offer and acceptance contract, and only then if the seller refuses to either rectify the fault or deduct an agreed amount from the purchaser price.

By agreeing to the terms of the REIWA Offer and Acceptance contract you have severely impaired your negotiation entitlement with regard to the rectification of defects highlighted in your building and timber pest inspection reports.


What Should I Have Done?

It is crucial that you assemble your team as early as possible in the property buying process and certainly prior to signing a contract.

Your team should consist of a Settlement Agent, Mortgage Broker and a Building Inspector. Some people also engage a buyer’s agent, however, the majority are confident to proceed with the aid of the former three..

Your Mortgage Broker will organise and advise on all financial matters. Your Settlement Agent will ensure that your contract is tailored to suit your requirements and you are able to lawfully act on the contracts of your Building and Timber Pest Reports by inserting carefully worded clauses into the special conditions section of the Offer and Acceptance contract.

The following are a non-exhaustive list of considerations that may be of concern to you and will need to be added to your O&A contract by your legal representative to enable you to take appropriate action:

  • A minimum of two Residual Current Devices are not only present but in correct working order. Despite penalties applying to sellers who do not comply this is still an item that is frequently not enforced. Currently 15 Australians die and around 300 are hospitalised each year from preventable electrical accidents at home. At a cost of $80 to ensure that the R.C.D’s are fully operational, smoke alarms comply and an electrical safety certificate is issued, to not adhere to this procedure is quite frankly a disgrace.
  • Smoke alarms are correctly installed and comply with current legislative requirements. On average 5 people are killed and many others seriously injured by house fires annually in WA. Penalties of up to $5,000 apply for non-compliance.
  • Pool and Spa barriers have been installed and maintained in accordance with current governing legislation. Over the last 5 years 16 toddlers have drown in Western Australia. For every drowning death it is estimated that a further 10 children are admitted to hospital following a near-drowning incident. Non-compliance can result in a maximum penalty of $5,000 and a penalty of $250 per day until compliance is achieved.
  • The rectification of significant/major structural defects, items such as leaking roofs, sagging ceilings and burst pipes are not considered as structural defects with the terms of the standard REIWA contract.
  • Mould treatment and removal is carried out by a suitably qualified professional. Toxic moulds release airborne spores that can pose serious health risks.
  • Electrical defects uncovered within the roof loft space are rectified and an electrical safety certificate is issued. At Cap-it-All Building Inspections we often find illegal electrical wiring and non-compliant downlights in the roof loft space. These dangerous defects may only be exposed by our Inspections as nobody else is legally permitted to enter this area whilst a home is being sold. If not rectified fire may occur which will burn above the smoke alarms putting occupants at risk of serious injury or death.
  • Chattels and fixtures, the term fixtures relates to items which are a fixed part of the property such as floor coverings, window treatments, light fittings and built-in air conditioners. Generally fixtures stay with the property upon sale. Chattels such as garden sheds, dishwashers and wall mounted tumble dryers may be removed by the seller unless stated otherwise within the terms of the contract.
  • Elimination of timber pests and rectification of any resulting damage. At Cap-It-All Building Inspections we are able to advise on the existence, the elimination and extent of rectification required where a home has been affected by the presence of the 3 main timber pests, namely – Termites, Borers and Fungal Rot/Decay. It is advisable that a clause be inserted to allow you to withdraw from the purchase if damage is found to be extensive.
  • Outbuildings, attachments and pools – only defects within the main residence are required to be rectified by the seller according to the standard REIWA contract. Although an old, unstable wooden shed affected by fungal decay and termite ridden may not be of concern to a purchaser, however a large workshop, detached garage, attached pergola or swimming pool with major structural defects may.
  • Illegal structures, where possible it is essential to confirm Council approval of additions, attachments, outbuildings, and swimming pools etc. which were not constructed at the same time as the main residence. If these structures were not approved, Council may seek retrospective approval or order demolition. Once settlement has occurred this may become your problem.
  • Having established what you would like to keep, you should also ensure that it is clear within your contract with regard to the items that you would like removed. For instance, do you envisage a future role for the unpainted, chipboard DIY cabinetry in the laundry? It is almost certain that the stack of old asbestos sheeting packed tightly behind the garden shed will not be required!
  • Is the pool equipment operational? Is the hot water system operational? Are items such as light globes, extractor fans, doors, windows, ceiling fans operational? What is the level of risk posed to my family by the identification of asbestos? Does the shower leak? 

So it is easy to see that current legislation in Western Australia is dictated mostly by REIWA and heavily favours the seller. That said, whilst there are many Real Estate Agents that will uncompromisingly hold you to the contract you have signed we also encounter others who operate in an extremely fair and ethical manner and will negotiate with their client to present you, the buyer, with a fair deal. However, why leave such an important, valuable transaction to chance? Assemble your team early in the buying process and they will represent your interests, empowering you with the correct advice and information to ensure a smooth, hassle free transaction and an ultimately rewarding outcome.

I conclude with a word of caution. Once educated to the many benefits and financial gains that may be obtained by instructing your Settlement Agent to insert clauses within the special conditions section on the REIWA Offer and Acceptance contract it is advisable not to try to swing the pendulum too far back in your favour. It is important to bear in mind that you are purchasing an established property and the majority of these homes will have a degree of maintenance issues which do not affect the value of the property. Whilst presenting power point presentations to our Property Industry Associates we often find that a large number advocate writing a clause into the contract such as “subject to my satisfaction of Building and Timber Pest Reports”. This is unlikely to be accepted by the selling agent, the vendor or their representatives as it can open a ‘Pandora’s box’ of infinite minor problems to be resolved.

We at Cap-It-All believe that everybody should be confident that the home that they are purchasing is safe and recommend that you have clauses inserted into your contract that ensure that the wiring in your roof loft space is in junction boxes, and the smoke alarms and RCDs are compliant with current legislation. You should receive an Electrical Safety Certificate to confirm this. Friable asbestos and mould issues should also be addressed. Swimming pool barriers should be compliant and issues such as leaking roofs, poorly fixed ceilings and unstable outbuildings/attachments etc. should be rectified prior to settlement. It is our intention to lobby Local State Government to follow the lead of many areas of Australia’s Eastern States where the Building and Pest Inspections are completed and available for viewing by prospective purchasers prior to the signing of a contract. We believe this to be a more transparent method which enables buyers to have a vastly improved insight into what will probably be their biggest life purchase.

In the meantime, Happy House Hunting and should you require advice or an inspector to identify any defects and hazards to your health and safety, contact Cap-It-All Building Inspections Perth.

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