Importance and types of due diligence when acting as a buyer's agent

When acting on behalf of clients purchasing a property in Queensland, or anywhere else in Australia, it’s crucial buyer’s agents perform comprehensive due diligence in relation to the property. Here are the key types of due diligence you should consider:

Basic searches

Title search:

Perform a title search of the property. In the title you will find legal ownership, encumbrances, easements, or covenants and caveats that could affect the property's use. Legal advice will be needed, especially when caveats are attached to the property.

Flood search:

Queensland has areas prone to flooding and cyclones, so check the property's flood history and whether it’s in a flood-prone zone. You can go to council websites to check flood maps to assess the risks.

Noise search:

Check for noise issues, such as busy roads. There are tools in place to check the noise impact on a property. Or the best way to do this ‘search’ is visit the property physically and test the noise. Visit the property during the peak period e.g between 7.30am and 9am or afternoon 3pm to 5.30pm.

Neighbourhood:

There are tools in place to find out what amenities are around the property e.g. schools, shops, transport. You can use mapping software like Google Maps to check distance etc. However, the best way is to physically inspect as well. You can then check the street façade, who are the people living in the neighbourhood, infrastructure in and around the property. Drive around to check out if there are any infrastructure that could potentially impact the property e.g. electricity generators, high voltage lines etc

Zoning and planning:

Ensure the property is zoned appropriately for the intended use and check for any future planning changes in the area. Check if there are any overlays e.g. flood overlay, vegetation overlay etc

Contract review:

Have a solicitor or conveyancer review the sales contract to identify any unfavorable terms or conditions. They should also be able to check if there are any legal disputes on the property.

Financial Searches

Valuation:

Do a quick valuation of the property to ensure the price is fair. CoreLogic is a popular site where you can get the lower, mid and high estimate of the property. We usually go by the mid estimate.

Note that this is an automated valuation. The software may not ‘know’ if any improvements have been made to the property. E.g. a property bought six months ago for $500k in a very run-down condition, but now the property is getting sold at $800k because the owner in that six months has performed a full renovation with new kitchens, bathrooms etc. The automated valuation may not stack up to $800k because the software is not aware of the completed renovation.

Funding the purchase:

Ensures buyers have secure pre-approval for a mortgage and confirm that the property's characteristics meet lender's requirements.

Costs and fees:

Estimate the total costs involved, including stamp duty, legal fees, inspection costs, and any potential renovations or repairs.

Body corp disclosure:

For units or townhouses, review the strata report, disclosure information to understand the management, fees, sinking fund, admin fund, special levies (if any).

Insurance costs:

Perform an online quote for insurance, check the availability and cost of insuring the property, particularly if it’s in a high-risk area for floods or other natural disasters. If the property is in a high-risk area the premium could be up to $8,000 per year as opposed to $1,500 per year in a less-risk area.

Land tax, rates:

Before settlement, advise your conveyancer to perform these searches to ensure there are no outstanding land tax, rates, water or any other governmental charges to this property.

Physical and Structural checks

Building and pest Inspections:

Conduct thorough inspections to identify any structural issues, pest infestations, or defects that could impact the property's value or safety. This is to be done by a licensed building and pest inspector. Defects identified can be used as a negotiating tool to further reduce the purchase price or get the sellers to fix before settlement.

This agreement needs to be formalised between both solicitors. If sellers agree to fix them then, the buyers or their rep, preferably engage the same building inspector to check if they have completed to industry standards workmanship. This needs to be completed at the time of pre settlement inspection.

Survey:

Consider getting a property survey to confirm the boundaries and ensure there are no encroachments.

Contamination check:

Ensure the land is free from contamination, particularly if the property was previously used for industrial, mining purposes. The conveyancer should be able to advise you what searches are relevant to this check.

Building work plans:

If there is any work done at the property e.g. shed, alfresco area, ensure they are council approved and work completed by a licensed builder.

Investment Property related checks

Rental and future potential:

Research the local market for that area/suburb. This helps you gauge the property's potential for future appreciation, rent yields, and the general demand in the area. Understanding these trends can help you make a more informed investment decision. Typical data points to be checked are supply/demand ratio, days on market, rental yield, number of properties for sale and rent and local demographics.

Tenant checks:

If the property is already tenanted, check latest tenant ledger to ensure they are paying rent on time, latest routine inspection report to ensure they have maintained the property well and also if there are any on-going maintenance issues, plus inspect the latest tenancy agreement to ensure contracts are in place.

Understanding development plans:

Investigating any planned developments or infrastructure projects in the area can impact the property's future value. For instance, new transport links could increase value, while nearby construction might decrease your property's desirability in the short term.

Zoning:

Investigate development zoning and school zoning overlays (if any). If the property purchase is for future development, e.g. knock down/rebuild, then a town planner is to be engaged for a detailed due diligence which includes a meeting with a council town planner on what can and what can't be done on the property. E.g. certain properties may be affected by environmental regulations or heritage listings, properties impacted by future ‘infrastructure’ etc. These could impact your plans for the property.

By conducting thorough due diligence in these areas, it helps to ensure that the investment is sound and that there are no hidden risks or issues. By understanding those, you can minimise risks and ensure your clients make an informed decision when purchasing a property.

Aanand Iyer is Lead Buyer's Agent for Guru Property.

Read another article about property sales: Important changes to property law in Queensland: Seller's Disclosure Regime.

Or browse our list of sales articles.