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Hidden costs buyers miss

Wednesday, 7th Oct 2020
Categories: Uncategorized

When it’s time to buy a home, most buyers research their purchasing budget and mortgage interest costs, carefully comparing one loan or property deal to another.

What buyers often miss are a number of additional hidden costs during the purchasing process, some of which come to light at settlement and lead to disputes with sellers. If left unresolved, this can often lead to an unwelcome cash outlay for the buyer when moving in. Other costs might not be discovered by the buyer until well after settlement, adding to the cash flow demands of holding the property over the longer term.

So, what are some of these hidden costs that catch buyers unaware?

Unexpected repairs at settlement

Most buyers have an expectation that all appliances and fixtures will be working at settlement, only to find that there are significant repairs required when they move in. This can stem from several causes (and sometimes more than one at a time). For example, the buyers may not have a “Good Working Order” clause on their contract, which requires the sellers to fix any items which aren’t working. In this instance, the seller is only required to keep the property in the same condition it was in at the time of purchase.

Case study

We worked with a client in the purchase of a family home in Perth’s southern suburbs, close to universities and in a good school catchment. During the property viewing, the buyer noted that the property had reverse cycle ducted air-conditioning, as well as a split system unit elsewhere in the house.

At the final inspection, our buyer’s agent tested the ducted air-conditioning, however the panel was not responding. When the selling agent called her client to check how to operate it, she then found out that the cooling unit in the ceiling had actually been decommissioned and removed!

The seller and their agent made the argument that, as the appliance unit had been removed from the property prior to the offer, it wasn’t included in the “good working order” clause (covering all fixed appliances). This presented not only a negative experience to the buyer, it also weakened the rental appeal of the property to potential tenants who would want air-conditioning throughout.

With the help of the settlement agent, our buyer’s agent sent a formal response citing not only our contract clauses, but also several other legal and regulatory standards the agent and their seller were in breach of, including false advertising (the AC ducting was visible in marketing photos as well as noted at the property). The wording of our custom contract clauses gave us extra leverage in these negotiations, as it allowed us to withhold funds at settlement if the issue was not resolved.

The buyer and the seller agreed on the compromise of an additional split system supplied and installed to extend the cooling throughout the house.

Buyer saving: $2500

Ongoing holding and maintenance costs

Some properties have higher ongoing costs than others. As an example, character homes will often involve higher maintenance costs or may require improvements further down the line. These properties don’t necessarily make for a bad purchase; in fact, they will often attract high demand due to their limited supply on the market. However, this option may not be suitable for buyers on a tight budget who can’t afford to save a cash buffer to cover unexpected repairs (or equally for buyers who are likely to overcapitalise on renovations!).

Similarly, buyers who are purchasing a property in a strata complex will need to do their due diligence on any ongoing strata fees, which are used to cover shared costs such as insurance and maintenance and future repairs to common areas.

It’s important to factor these ongoing expenses into your budget and the impact these will place on your finances when searching for properties and weighing up their long-term potential.

Case study: Headaches from hidden plumbing costs

Many of our clients opt to purchase older houses on 600-800sqm blocks of land, due to their land value and (in some cases) the opportunity to add value and/or subdivide in the future.

One issue that can come up after settlement is ongoing plumbing issues, which can be hard to detect at a final inspection. In some locations, older plumbing fixtures have worn down or tree roots have made their way into clay pipes, which can result in regular calls to the property manager for blocked toilets and drains.

When we’re purchasing in areas and/or housing types susceptible to these issues, we recommend to our buyers that they engage a plumber for a pre-settlement inspection. As these inspections can be costly, some buyers will instead opt to put money aside in a contingency account for larger fixture upgrades like this to reduce financial stress in the future.

While land value is an important factor to consider with an investment, not every investor has the cash flow and/or the appetite to deal with the ongoing maintenance that older houses present. We work closely with our clients to understand their cash flow and risk appetite early in the process, and match properties that are a good fit for them in the long term.

“Trial and error” is expensive – hire experience instead

Most property buyers only make a property purchase occasionally, so it’s not surprising that they may miss some of these hidden costs at the time of purchase. Even a friendly and diligent selling agent will be unaware of some of the property’s features and issues and may overlook communicating information that they assume the buyer already knows.

Having negotiated on over 1200 transactions, our buyer’s agents have seen a wide range of issues and offer this perspective and experience for our client’s benefit. With a thorough due diligence process, a team of specialist inspectors and in-house quality assurance support, our team help buyers to reduce their risk of surprise costs and protect their financial position during a property purchase.

To find out how our buyer’s agents can save you money and increase your peace of mind, get in touch with us for an obligation-free consultation. You can also click here to download a brochure that highlights how our negotiation and due diligence service helps home buyers.