So, you think you’ve finally found the right property – be it your next home or investment?
Months of searching online, the rollercoaster of anticipation, knock-backs, and near wins – they’ve finally resulted in success.
You’ve found a property that seems to tick all the right boxes.
Yay!
Before you get too excited and rush into signing a Contract of Sale, take a pause to run through the 6 cornerstones of property due diligence.
These are vital steps if you don’t want to buy a property you later regret.
1. Location due diligence
When it comes to property investment, "location, location, location" is the mantra chanted for decades.
And you probably heard me say that location will account for about 80% of your property's capital growth.
But what makes an investment-grade location?
Well, there’s a detailed article explaining this here, so ensure that the property is situated in a desirable location to maximize resale value and avoid factors that can turn off potential buyers.
When considering location, evaluate factors such as:
- Proximity to schools, shopping centres, public transportation, and other amenities.
- Research crime rates and neighbourhood demographics to understand the area's desirability.
- Check for potential future developments that may affect the property's value, such as new infrastructure projects, rezoning proposals, or planned construction works.
- In light of recent natural disasters, it's crucial to investigate potential risks associated with the property, including flood zones, bushfire-prone areas, and other hazards.
2. Physical due diligence
Physical due diligence involves assessing the property's structure, systems, and overall condition.
Hire professionals to conduct building and pest inspections, ensuring that the property is structurally sound and free of termites or other infestations.
Examine the property's layout, orientation, and features, such as block size, street frontage, and views, as these factors can influence future resale value.
Knowledge is power, so gather as much information as possible before committing to the purchase.
3. Financial due diligence
Financial due diligence involves more than ascertaining its value by checking comparable sales.
Conduct a CoreLogic search to access information on the property's previous transactions, including purchase and sale prices.
Calculate the property's holding costs, considering factors such as council rates, water rates, strata fees, land tax, insurance, and maintenance expenses. 
Additionally, assess the property's rental potential and market trends to determine its viability as an investment.
Understanding the financial implications of a property purchase will help you make informed decisions and avoid potential financial pitfalls.
4. Regulatory due diligence
Check with local council regulations and restrictions before planning renovations or structural changes.
Ensure you are aware of any heritage-listed aspects of the property and consult with a town planner at your local council to understand what you can and can't do if there are any restrictions.
5. Legal due diligence
Your solicitor, or lawyer should check the property's title and other legal documents to ensure that there are no encumbrances or issues that could adversely affect your interests.
Your solicitor should review the Contract of Sale and check for easements, caveats, covenants, and outstanding finance.
They should also review boundary surveys and confirm that the property's boundaries align with the title.
Legal professionals will ensure that all necessary searches, disclosures, and statutory requirements are met to protect your interests.
6. Environmental due diligence
Environmental due diligence involves identifying any environmental issues or risks associated with the property.
Research the property's history to determine whether there were any previous uses that may have caused land contamination, such as industrial activities or waste disposal.
Check for nearby sources of pollution, such as busy roads or factories, which may negatively impact the property's appeal.
Also, check for asbestos in any property built or renovated before 1987.
Investigate local and regional environmental concerns, such as air quality, water quality, and soil conditions.
Understanding vendor disclosure requirements
The reason you need to conduct this due diligence is that in some States vendors have very little regulatory requirement to disclose information to potential buyers.
However, understanding the vendor disclosure requirements in your state is crucial for a smooth and hassle-free transaction.
Just to make things clear… vendor disclosure refers to the information that sellers must provide to potential buyers about the property in question.
As I said, these requirements vary from state to state, so here is a brief overview of vendor disclosure requirements across Australia's states and territories.
New South Wales
In NSW, vendors are required to provide a Contract of Sale, which includes various documents, such as a zoning certificate, drainage diagram, and title search.
A property certificate and any easements, covenants, or restrictions must also be disclosed.
Furthermore, vendors should declare any significant developments or changes to the property or its surroundings, and if the property is in a bushfire-prone area, a bushfire risk assessment may be required.
Victoria
In Victoria, vendors must provide a Vendor's Statement, also known as a Section 32 statement.
This document includes information about the property's title, planning information, any building permits issued within the last seven years, and details about outgoings, such as council rates and water charges.
Vendors must also disclose any known easements, covenants, or restrictions that affect the property.
Queensland
Queensland has a comparatively simpler vendor disclosure process.
The seller must provide a Contract of Sale, which includes a title search, details of any registered encumbrances, and information about the property's zoning.
However, Queensland law places more responsibility on the buyer to conduct their due diligence on matters such as building and pest inspections, flood risks, and contamination issues.
South Australia
In SA, a vendor must provide a Form 1 Vendor's Statement, which contains information about the property's title, zoning, and any registered encumbrances.
The statement should also include details about outgoings, such as council rates and water charges, as well as any known easements or restrictions on the property.
Western Australia
In WA, the vendor must provide a Seller's Disclosure Statement, which includes information about the property's title, any encumbrances, outstanding rates, zoning, and details of any legal proceedings affecting the property.
The seller is also required to disclose any known defects or issues with the property.
Tasmania
Tasmanian vendors must provide a Property Information Disclosure Statement, which includes information about the property's title, zoning, and any registered encumbrances.
The statement should also disclose any outgoings, such as council rates and water charges, and details about any known easements or restrictions on the property.
Australian Capital Territory
In the ACT, vendors are required to provide a Contract of Sale, which includes a title search, zoning certificate, and a drainage diagram.
They must also disclose any known easements, covenants, or restrictions that affect the property.
Additionally, an Energy Efficiency Rating (EER) statement must be provided for residential properties.
Northern Territory
In the NT, vendors must provide a Contract of Sale, which includes a title search and any registered encumbrances.
Buyers are responsible for conducting their due diligence regarding other matters, such as building and pest inspections and flood risks.
Note: The key to an astute purchase is thorough property due diligence.
And as you can see this is quite a complicated process, that's why having a buyer’s agent on your side levelling the playing field makes a lot of sense and can save you a lot of heartaches.
