What Is Due Diligence?

9th August 2019

Posted in: Articles

What is ‘due diligence’ and why do I need to do it?

Before you buy a home you should be aware of a range of issues that may affect that property and impose restrictions or obligations on you, if you buy it. We recommend engaging a lawyer or conveyancer to help you understand the contract and rights associated as a buyer.

Due diligence is the investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party.

Why is it important that I carry out my due diligence when buying a new property?

It is so important to carry out all due diligence before committing to purchase so you can determine any benefits, liabilities, risks and/or opportunities are associated with your purchase.

A building and pest inspection is one way to ensure that there are no unseen building issues that might be missed by an untrained eye, or that a seller may have covered up in an effort to sell for the top dollar.
For more information about our Building & Pest Inspections please click here.

Some due dilligence items you may like to identify are;

  • Is the property subject to an owners corporation/body corp?If the property is part of a subdivision with common property such as driveways or grounds, it may be subject to an owners corporation. You may be required to pay fees and follow rules that restrict what you can do on your property, such as a ban on pet ownership.
  • Moving to the inner city?High density areas are attractive for their entertainment and service areas, but these activities create increased traffic as well as noise and odours from businesses and people. Familiarising yourself with the character of the area will give you a balanced understanding of what to expect.
  • Does this property experience flooding or bushfire?Properties are sometimes subject to the risk of fire and flooding due to their location. You should properly investigate these risks and consider their implications for land management, buildings and insurance premiums.
  • Moving to the country?If you are looking at property in a rural zone, consider:
    • Is the surrounding land use compatible with your lifestyle expectations? Farming can create noise or odour that may be at odds with your expectations of a rural lifestyle.
    • Are you considering removing native vegetation? There are regulations which affect your ability to remove native vegetation on private property.

    Do you understand your obligations to manage weeds and pest animals?

  • Has previous land use affected the soil or groundwater?You should consider whether past activities, including the use of adjacent land, may have caused contamination at the site and whether this may prevent you from doing certain things to or on the land in the future.
  • Do you know the exact boundary of the property?You should compare the measurements shown on the title document with actual fences and buildings on the property, to make sure the boundaries match. If you have concerns about this, you can speak to your lawyer or conveyancer, or commission a site survey to establish property boundaries.
  • Can you change how the property is used, or the buildings on it?All land is subject to a planning scheme, run by the local council. How the property is zoned and any overlays that may apply, will determine how the land can be used. This may restrict such things as whether you can build on vacant land or how you can alter or develop the land and its buildings over time.The local council can give you advice about the planning scheme, as well as details of any other restrictions that may apply, such as design guidelines or bushfire safety design. There may also be restrictions – known as encumbrances – on the property’s title, which prevent you from developing the property. You can find out about encumbrances by looking at the section 32 statement.
  • Are there any proposed or granted planning permits?The local council can advise you if there are any proposed or issued planning permits for any properties close by. Significant developments in your area may change the local ‘character’ (predominant style of the area) and may increase noise or traffic near the property.
  • Is the building safe to live in?Building laws are in place to ensure building safety. Professional building inspections can help you assess the property for electrical safety, possible illegal building work, adequate pool or spa fencing and the presence of asbestos, termites, or other potential hazards.
  • Have any buildings or retaining walls on the property been altered, or do you plan to alter them?There are laws and regulations about how buildings and retaining walls are constructed, which you may wish to investigate to ensure any completed or proposed building work is approved. The local council may be able to give you information about any building permits issued for recent building works done to the property, and what you must do to plan new work. You can also commission a private building surveyor’s assessment.
  • Are any recent building or renovation works covered by insurance?Ask the vendor if there is any owner-builder insurance or builder’s warranty to cover defects in the work done to the property.
  • Does the property have working connections for water, sewerage, electricity, gas, telephone and internet?Unconnected services may not be available, or may incur a fee to connect. You may also need to choose from a range of suppliers for these services. This may be particularly important in rural areas where some services are not available.
  • Do you know your rights when buying a property?The contract of sale and section 32 statement contain important information about the property, so you should request to see these and read them thoroughly. Many people engage a lawyer or conveyancer to help them understand the contracts and ensure the sale goes through correctly. If you intend to hire a professional, you should consider speaking to them before you commit to the sale. There are also important rules about the way private sales and auctions are conducted. These may include a cooling-off period and specific rights associated with ‘off the plan’ sales. The important thing to remember is that, as the buyer, you have rights.
[Excerpts from the Consumer Affairs Vic Due Diligence Checklist 2016].