Pre-Purchase Builders reports - Who should get one and who definitely should not get one!
When purchasing a property, a builder’s report is an important part of your due-diligence process. While a Vendor may provide a report to assist with marketing the property, Purchasers should never rely on a builder’s report provided by the Vendor.
The Report Is Not Prepared for the Purchaser
A Vendor’s builder’s report is prepared for the Vendor, not the Purchaser. Because the Vendor chooses and pays the builder to provide a report, the report may not be fully independent. Even where prepared professionally, it is not prepared for the purpose of protecting the Purchaser’s interests.
The Scope May Be Limited
Vendor-provided reports are often prepared for general disclosure purposes and may not include a detailed assessment of all risk areas. Issues such as long-term maintenance, moisture ingress, or early signs of structural movement may not be fully investigated.
It May Be Out of Date
Property conditions can change over time. A report obtained by the Vendor may no longer reflect the current condition of the property, particularly if time has passed or repairs have been carried out since the inspection.
No Legal Protection for the Purchaser
The builder’s duty of care is owed only to the Vendor. As such, this limits a Purchaser’s ability to rely on the report or have any claim for compensation if significant defects are discovered after settlement.
Potential Financial Risk
Relying on a Vendor’s report may expose Purchasers to unexpected repair costs or future disputes as the report is not focused on the Purchaser’s interests.
Not All Reports are the same
The pre-purchase building report industry is not regulated. That means anyone can set themselves up as a provider of pre-purchase building reports. Consequently, there are a variety of reports on the market, some of which are of excellent quality and some which are of questionable quality. You should always question the person you are going to engage to write a report as to their qualification. It is preferable that they have qualifications in the construction sector or a building surveyor qualification. You should ask for evidence of their qualification. You need to be confident that the report writer knows what they are doing and has the requisite skill set.
Our Advice
We recommend that all Purchasers obtain their own independent builder’s report before committing to a purchase. A Vendor’s report can be helpful as background information, but it should not replace a report which is prepared specifically for you.
If you would like advice on any of the due diligence to undertake prior to submitting an offer, our team at Collins & May Law is happy to assist.
Why vendors should never obtain a builder’s report when selling
It has become very popular in the real estate industry to recommend vendors provide a builder’s report to potential purchasers. Our advice to clients is that this is not what the vendors should do.
The legal maxim “caveat emptor” (meaning “let the buyer be aware”) is still applicable to Contract Law in New Zealand.
However, the protection of caveat emptor can be eroded by obtaining a vendors builders report.
Real estate agents have certain obligations to disclose to all potential purchasers any defects in a property that they are aware of.
Therefore, when you complete your listing agreement a real estate agent will ask you a series of questions about your knowledge of the house. You must answer honestly and within your knowledge.
If you have no knowledge of any defects, then you can honestly respond to those queries that you are not aware of any defects in the property.
However, if the agent recommends that you provide a vendors builders report and that highlights some defects that you were not aware of then you will have an obligation to disclose those to potential purchasers through the agent.
This can have a serious impact on the sale value of the property, depending on the circumstances. For example, recently a couple who were about to retire decided to downsize their home and free up some capital from a property they had lived in for approximately 20 years.
They listed the property with a real estate agent who recommended that they get a builder’s report done and recommended a building inspector.
When the builder attended the property and started inspecting it, he stopped and advised the vendors that he did not believe they should be getting a builder’s report because they will not like what he is going to say about the property.
This immediately put the vendors on notice that they had some defects that are potentially serious and because the agent had recommended, the inspector they now had knowledge that there were defects in the property and would have to disclose them to the agent when asked what the builder had advised.
Ultimately, this had the potential to devalue the property by hundreds of thousands of dollars.
If they had not obtained the builders report, these vendors would have been able to respond to the agent’s queries about whether they were aware of any defects honestly by saying they were not aware of any defects as no symptoms of the defects were visible.
Ultimately, they had no option but to remove the property from the market. Their retirement plans were in tatters.
Had the agent not recommended they get a report then caveat emptor would have applied and it would be up to any potential purchaser to undertake their own due diligence and if they had not noticed the defects then the property is simply sold as is where is.
If a house is not new it would be unusual for there not to be some minor defects that require maintenance.
However, when those defects are listed in a vendor’s supplied builders report that immediately gives any potential purchaser an opportunity to negotiate a decrease in the purchase price or the basis for offering less than they might otherwise have done.
It is not the responsibility of a vendor to undertake due diligence on the house that they are selling for the purchaser. It is up to the purchaser to do that.
Therefore, recommending a vendor provide a builder’s report is potentially acting against the best interests of the vendor.
We therefore recommend vendors do not in any circumstances obtain a pre-purchase builders report.
