Common Sense

Property Due Diligence is just common sense, right?

But as French philosopher Voltaire famously said: “Common sense isn’t that common”.

Here at EYEON Property Inspections, we estimate at least 25-30% of property buyers don’t carry out basic due diligence on the properties they buy. The estimate is conservative and is based on data we collect from tens of thousands of Sydney property buyers who use our inspection services each year.

We know that buyers get very frustrated with the lack of transparency by many selling agents when it comes to checking a property out. And agents know buyers want to find outwhether the property is OK, but they don’t always make the process as easy as it should be. In fact, some agents hope that buyers won’t bother with due diligence at all.

But it’s also fair to say that some buyers consciously go ahead and buy without checking out the condition of the property. Why?

They are three main reasons buyers don’t get inspection reports.

Firstly, buying property is still quite an emotional process.

This is an important point and many people believe it helps explain why real estate agents haven’t yet been disrupted by technology or new selling models.

We regularly hear from buyers who’ve missed out on properties to those who’ve made an offer or bid at auction after just seeing the property. We also hear of properties being sold on the first day they are on the market. This is because once a buyer has made an emotional connection to a property, they will often make a rather impulsive decision to just buy it straight away.

Secondly, buyers are often under pressure from selling agents to move quickly.

Agents know that creating a sense of urgency helps to get the sale across the line.It also plays on the emotional connection buyers develop with properties they like.Agents might make them feel there isn’t time to check out the property because someone else is ready to buy now, or that even if they get a report and want to negotiate they’ll finish up missing out to a higher offer.

It is common for us to have buyers anxiously waiting for their inspection report because the agent is insisting they exchange contracts that day. Of course, they don’t really have time to properly consider the report or ask questions about it. These people are doing their due diligence but aren’t getting the full value of the service.

Thirdly, the cost of reports is a problem.

This has become a bigger issue as more properties are now being sold by auction. Buying at auction is unconditional so buyers need to carry out all their checks before bidding. And each time you like a place you need to spend money on inspections. But when the property market is as competitive as in Sydney, your money is often wasted.

And there’s another thing about inspection costs. Unlike the massive cost of the property which is financed by a combination of debt and equity, inspection costs come out of the buyer’s pocket. And because buyers are often stretching themselves to buy a place, those costs hurt, so sometimes buyers decide to cross their fingers and hope for the best.

Our business has been very aware of these pressures on buyers for a long time. And our solution, Open Access Inspections, has been on the market for a few years now. It’s a service that engages vendors in the inspection process around the time their property goes on the market.

Getting the vendor involved makes sense.

Vendors who engage in this process feel more confident about selling because the inspection process has been dealt with upfront. They also know that a potential buyer can confidently check out their property quickly and for a low upfront fee which is only 20% of a standard inspection fee.

We survey all our vendors and the survey responses about the service are overwhelming. 95% of surveyed vendors like it so much that they would recommend it to family and friends. And buyers respond with similar enthusiasm. They like the low cost and (by us putting a strong focus on service delivery and customer follow up) are confident about report quality.

However, selling agents often struggle with changing their practices.

To some degree, agents would rather not deal with inspections until they have to. They are also trying to get vendors to stump up for property marketing expenses, which is their priority. Many don’t want to mention any other costs to the vendor.

Other agents are happy to encourage vendors to get an inspection done but want to control the process. This can mean they decide to give out reports to buyers. In one case where this happens, the first thing the report says is “You cannot rely on this report if you are buying this property”. How could a property buyer feel confident in a report like that?

By removing the relationship between inspector and buyers, agents are just adding more frustration to the process. Our feedback from buyers is very clear:

They like the idea of getting a free report (we all like free stuff) but they don’t trust its independence.

Free Reports.

It’s not surprising that buyers like the idea of free reports. As I said earlier, they are stretching themselves financially to buy anyway. But when you are worried about the report quality what’s the point?

The problems with giving out free reports are really highlighted by the system in the ACT. There, sellers MUST get a building inspection done and it’s included with the contract of sale. In practice selling agents control the building inspection process and, as a result, report quality has fallen significantly because corners are often cut by inspectors so their workflow from agents won’t be affected. A number of inspection businesses in Canberra have withdrawn from this work because it lacks integrity.

Property lawyers in the ACT know that local inspection firms take short cuts but their buying clients are reticent to pay for another inspection, particularly because they also pay for the seller’s inspection under ACT law if they buy the house. The ACT system doesn’t seem to effectively regulate these practices.

The agents who make it easier and cheaper for buyers to get a report from someone reputable, benefit in their own business by getting better more referrals.

It is because both buyers and sellers have a better experience dealing with them.

In an industry where trust levels are usually rock bottom, it shouldn’t be surprising that being more professional reaps dividends. It’s just common sense.

Best Regards,
Michael Ferrier

At EYEON Property Inspections, we help you buy and sell with more confidence.