Step 8 - Post-Signing and Settlement
First things first, there will be various issues that the building and pest inspector identifies - you need to manage your expectations… this is a property, so there will be defects and that is perfectly normal.
What we are concerned about is major issues or issues which may suggest that there will be major issues in the near future.
Summarise the findings of the report
The first step is for you to comb through the report and create a summary of all the types of issues identified in the report and whether they are major or minor defects. For reference, the inspector will state which issues are considered 'major defects' and 'minor defects' - you won't need to do this yourself.
For example, this could look something like: "Cracked tiles in - bathroom, kitchen, living room (Minor)", "Hairline cracks in walls of main bedroom and living room (Minor)", "Leaks and waterproof failure in ensuite and main bathroom (Major)". Basically you want to make sure you are summarising as well as grouping the issues and not just copying and pasting the findings of the report as that is not very useful.
You can upload the report into ChatGPT and it can produce a decent summary for you, but I strongly recommend also reading it in full to ensure you do not miss anything - the pictures provided by the inspector are also useful in terms of visualising the issue.
For reference, issues such as "the property is conducive to future pest activity / a termite barrier should be installed etc." or "not all areas were able to be inspected due to limited visibility etc." are in almost every building and pest report and are generally not something to panic about, but as we are about to discuss below, you should call the inspector and ask for more information.
Call the building and pest inspector
I know some people are allergic to phone calls, but once you have a summary of all the issues (major and minor), you should call the inspector and walk through each of the summarised issues. Inspectors are much more candid / honest over the phone whether something is a big deal or not, they are generally much more cautious in the written report.
You should ask them whether an issue is very problematic, if it needs to be fixed asap or if it could wait a few years, how much it generally costs to fix, is it a common issue and what their opinion is on the general condition of the property.
At the end of the call you need to know the following two things:
What must be fixed asap or is a dealbreaker, what are the ‘nice to haves’ and what you can just leave as is for now; and
What are the ball park costs to fix each of those items.
Noting the inspector may not have the answer to all these questions so you may need to do a combination of google research and asking tradies (ask your property manager for a recommendation) - but it doesn’t hurt to ask.
Understanding the red-flag issues / dealbreakers
Any dealbreakers in a building and pest report should typically be categorised as a "major defect" and may include any of the following:
Major structural issues: such as significant cracks in the foundation or walls from movement in the property.
This is almost always a dealbreaker for me as usually the damage cannot be properly quantified so even if the Seller agrees to a price reduction I will move on.
Termite issues: this includes either active termites activity and damage at the property, or evidence of past termite damage but no current termite activity.
Whether this is a dealbreaker will depend on your risk appetite and the conversation you have with the building and pest inspector.
For me personally, if there is active termite activity and evidence of termite damage - then this is a dealbreaker.
However, if there is no active termite activity but evidence of past termite damage, or if there is active termite activity away from the house and no evidence of termite damage - then this is not always a dealbreaker if you can be compensated for the risk you are taking (i.e. reduction of purchase price, Sellers paying to get repair damage and / or exterminate the termites asap).
For reference, my risk tolerance is very low so any termite issues are a dealbreaker for me, but it doesn't always have to be the case. You should lean on your building and pest inspector and even consider asking for a second opinion from a termite specialist.
Dampness, mould or moisture issues: this includes evidence of high moisture levels or mould in any area of the house.
Whether this is a dealbreaker will depend on the severity of the issue, your risk appetite and the negotiated position reached with the Seller as a result of this issue.
Moisture issues, especially in wet areas like bathrooms, can be very expensive to fix as it can involve having to completely re-do the bathroom which can cost upwards of $20,000 - $30,000.
If you can get the Seller to fix these issues to your satisfaction or provide an appropriate discount then these types of issues may not be a dealbreaker. However if not, and if you don't think the price is good enough to justify spending the amount to fix the issue (or you don't want to deal with the hassle) then this would be a dealbreaker.
Roofing or plumbing issues: this includes missing / cracked roof tiles leading to active water ingress or severe water pressure issues.
Similar to the above, whether this is a dealbreaker will depend on the severity of the issue, your risk appetite and the negotiated position reached with the Seller as a result of this issue.
These types of issues can be very expensive if serious, so it is important that you have a good understanding of the severity and cost to fix them so you can best understand when you need to walk away.
Negotiation options after building and pest inspection
Once you have summarised the report, talked to the building and pest inspector, understood what needs to be fixed and how much it costs then you have the following options:
Option 1:Ask the seller to reduce the purchase price to compensate you for the issues
You need to confer with your conveyancer first on the process for requesting a price reduction, they will be able to guide you through this. It is important to understand your termination rights before asking for this reduction as then you know what leverage you have and whether the sellers have any pressure to accept your proposal.
You will need to use your judgement here depending on your conversations with your conveyancer, if you request too much of a discount you may annoy the sellers and reduce your chances of getting a reduction. Be reasonable, this is not a chance to get one over on the seller - this is just you getting compensated for newly identified issues.
I have included below two draft emails for your reference, one to your conveyancer and the other to the agent. Only send the one to the agent once you get confirmation from your conveyancer that they have sent the request for a price reduction.
Note that if any of the issues are major defects, you should explicitly note that in your emails.
DRAFT EMAIL TO CONVEYANCER
Subject: Price Adjustment - B&P Inspection - [insert address]
Hi [insert your conveyancer's name],
The building and pest inspection has identified several defects. Please find the full report attached, along with a summary of the findings and my recommendations below.
(Roof) Cracked roof tiles: To be repaired to prevent water leaking into the property – approx. $600 (see pg. 62 of building and pest report)
(Exterior) Fascia: Timber fungal decay identified and need to be replaced – approx. $1,000 (see pg. 87 of building and pest report)
(Interior) Window gaps: In the living/dining area, which may allow air and moisture to enter the home – approx. $400 (see pg. 101 of building and pest report)
On this basis, we believe it is reasonable to request a $2,000 reduction by way of settlement.
If you could please let me know my termination rights in this scenario (if any) that would be great. After this, I would be grateful if you could please arrange for this request to be made to the seller's conveyancer at your earliest convenience.
Kind regards,
[insert]
DRAFT EMAIL TO SALES AGENT
Subject: Price Adjustment - B&P Inspection - [insert address]
Hi [insert the sales agent's name],
Following a discussion with the building and pest inspector, I’ve submitted a request through my conveyancer for a price adjustment based on some of the defects identified in the inspection report.
The estimated total cost to rectify the defects is $2,000 - I have included a breakdown below:
Cracked roof tiles: To be repaired to prevent water leaking into the property – $600
Fascia: Timber fungal decay identified and need to be replaced – $1,000
Window gaps: In the living/dining area, which may allow air and moisture to enter the home – $400
In light of the above, I have requested a $2,000 price reduction but just wanted to give you and the seller a heads-up - noting my conveyancer, if they haven’t already, will be reaching out to the seller’s conveyancer shortly.
Looking forward to hearing from you / the seller’s conveyancer and reaching an agreement which is fair for all parties involved.
Kind regards,
[insert]
Option 2:Get the seller to fix the issues prior to settlement
You won't be compensated in cash for the price reductions, so if you have insufficient cash to make the repairs you may instead want the seller to fix the issues.
Talk to your conveyancer on how to best frame this, but in general you will want evidence that this is done by licensed tradespeople (i.e. invoices and pictures of the completed work etc.) and if you can, that it is done to your absolute satisfaction.
You can still use the above email templates but just amend them accordingly for the fact you are asking for the seller to fix them instead of the price being reduced.
Option 3: Combination of both option 1 and 2
Alternatively, you can also do a combination of price reduction and getting the sellers to fix certain issues - whatever works for you in your current circumstances.
Option 4:Subject to your conveyancers confirmation, terminate the contract
Lastly, but certainly not least, if the issue is a dealbreaker or the sellers are not willing to negotiate you can also try to terminate the contract.
However, you need to confirm your rights with your conveyancer as each states varies quite a bit.
Your conveyancer will need to send through the termination request - remember there is no second chances after this, once it is terminated the deal is off.
If you want to get some more information on building and pest inspections check out the below video.