Proposed Mandatory Pre-Sale Inspections for NSW 3

Tuesday, December 8th, 2015
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The Minister for Innovation and Better Regulation in NSW Victor Dominello has declared interest in introducing a mandatory pre-sale inspection regime when listing property for sale in NSW in the interest of consumer protection.

This was looked at back in 2010 by the then Labor government and was not introduced.

The reasoning behind bringing in this type of inspection regime for the sale of property is the desire to save prospective buyers money as it is considered to be a serious cost to the consumer when they require multiple reports, especially in a hot auction market.

Mandatory building, pest, energy rating and compliance reports have been in place in the Australian Capital Territory (ACT) since 2004.  The intent of this legislation is to provide buyers with reports they can rely upon and save them money on numerous inspection costs. Having carried out inspections in this market for 10 years, we have seen first-hand the problems associated with this type of legislation.

Mandatory inspections (Sale of Residential Property Act) carried out in the ACT are being found to be “sellers” inspections and not “buyers” inspections as they are arranged by the seller and the agent and not by the buyer, so the notion of “buyer beware” still remains. Issues remaining hidden are exemplified with mandatory inspections due to the engaged inspectors being encouraged to be less than thorough and the sellers being encouraged to hide issues rather than the full disclosure that you would think should be the intent of this type of legislation.

The Minister believes mandatory inspections will provide assistance to the consumer by saving them money. The reality is, it often results in costing them money in the following months and years of home ownership due to costs associated with rectifying hidden problems that were not identified in the “sellers” reports.

The industry definitely needs a shakeup in NSW, but is this the answer? The pre-purchase property inspection industry is a legitimate industry with many highly qualified and valuable parties within its ranks that provide consumers with quality information on the condition of properties. There are already problems within the industry in NSW due to unscrupulous and uninsured operators providing cheap reports that favor sellers and selling agents. The ACT model has shown that mandatory inspections further open up this process to poor consumer protection as it is seen as an easy way to make money and sell properties rather than help buyers.

“Buyer beware” has never been more important than now with the high cost of home ownership in NSW. The Minister has suggested that his department will consult with the state’s peak real estate bodies. The parties most likely to be missed in this conversation is the very people that this proposed legislation is meant to help, the consumers.

Unfortunately, buyers think this is a great idea. However they really don’t understand the consequence of the seller and the real estate agent engaging the inspection company to carry out the inspection to produce a report for the buyer. In reality, this report is carried out for the seller so they can sell their house.

It’s interesting that there seems to be no discussion on saving money for home buyers by dropping the stamp duty levies. The average price for property in Australia is over $650,000 and based upon this figure, over $25,000 is payable in stamp duty in NSW.

As a result, you have to wonder what this really all is about. Could it be designed to benefit powerful lobby groups within the real estate industry keen to gain further control over the sales process?

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  1. Iven Frangi

    Excellent information. This needs to be better explained because there are traps for people who might do this without expert advice.

  2. Charles Litho

    Keep in mind that the real depreciation in buildings is 4% a year.
    You are buying a 25 year old house, you pay only for the land value and you have expectations that you should have a house with everything working. What foolishness?
    My neighbourhood with 30 year old well build substantial houses never sell more than $100,000 ( 10% ) above land value. Try going to court and prove that you did not get value for money for a building that would cost more than $600,000 to build today.
    Adding more people with their hand out for a share of the housing costs is exactly what we do not need.

  3. George Rousos

    Hi Bruce,

    Good post, however, I don't think a building and pest inspector would be silly enough to manipulate their reports to favour a real estate agent or vendors interests. Why would any professional want to risk being sued, losing their licence or have some course of action taken against them under Australian Consumer Laws – especially when there is a limitation period of 6 years for someone to claim damages. The proposed new law shouldn't prevent a buyer from purchasing their own report either, but the pre-sale building and pest report should be provided by the seller and form part of the contract for sale of land. Many problems can be negotiated and addressed early before a contract is entered into, and at the same time accelerate the sales process and avoid legal battles along the way. Overall it's a good idea.