How to Choose the Best Conditions for You When Buying Residential Property

How to Choose the Best Conditions for You When Buying Residential Property

Purchasing a property is a huge investment, but uncertainty and hidden issues can make it a costly nightmare. You don't want to end up stuck with a lemon, or worse, lose your hard-earned cash due to unseen legal or structural problems. To save you from these potential pitfalls, understanding the importance of using conditions such as Due Diligence, Finance, LIM Report, and Building Report when buying a property is key. These conditions offer an escape route, allowing you to cancel the deal if things don't go as expected. Let's explore each one in detail.

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How to Understand the Conditions

Making an offer conditional on a 10 working day due diligence period.

Making an offer conditional on finance within 10 working days.

Making an offer conditional on a building report within 15 working days.

Making an offer conditional on a LIM report within 15 working days.

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LIM Report Condition

Pros

• Makes buying the house depend on if you're okay with the LIM report. This can tell you about hazards like floods or pollution, or rules about what you can do with the property.
• Gives you information about building permissions and zoning rules about the property.

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Cons

• Only covers the LIM report, not other possible problems.
• You need to do other checks like finance, legal issues, building inspections beforehand, which can cost money.
• It has strict rules and is a bit complicated.
• You need to order the LIM report in your name, meaning you need to pay extra.

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Building Report Condition

Pros

• If the report finds problems, you can ask the seller to fix them or lower the price.
• Helps you know about the property's condition and any future repairs.
• Can find hidden problems the seller might not know about.

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Cons

• You need to do other checks like finance, legal issues, LIM report beforehand, which can cost money.
• May not find all problems, leading to extra costs later.
• May find big problems that make the property less attractive.
• Some parts of the property might not be checked.

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Finance Condition

Pros

• Buying the house depends on you getting the money to buy it.
• You can get pre-approval for a loan before making offers, knowing how much you can spend.
• Gives you time to get money for the purchase.
• A mortgage advisor can do most of the pre-approval work for free.

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Cons

• You need to do other checks like legal issues, LIM report, and building inspection beforehand, which can cost money.
• Only covers your ability to get a loan, not other possible problems.
• If you only use this condition and later find a problem with the house, you may be stuck.
• You need to apply for finance and follow through with your application.
• If you get pre-approval for a loan, you can't back out of the purchase.

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Due Diligence

Pros

• Covers multiple checks on the property, like title, local council rules, or any other thing you want to check.
• Until the agreement is signed, you don't need to spend money or complete tasks for other checks.
• Gives more protection than individual conditions.
• Gives you time to check the property thoroughly before buying.
• Helps find any possible issues with the property.

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Cons

• Sellers may not like your "get out of jail free" clause.
• In a competitive market, your offer might not look as good as an offer with less or no conditions.
• You shouldn't do all your checks during this period as you could run out of time. Start anything you can do in advance, like finance.
• You still need to take all reasonable steps to fulfill this due diligence condition. You need to put in the effort, like instructing your lawyer to review legal documents, arranging finance, etc

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How to Choose the Best Condition for You

LIM Report Condition

If you're concerned about environmental hazards, zoning rules, building consents, or your ability to subdivide the property, the LIM Report condition can be beneficial. However, it only covers the LIM Report, meaning you'll need to perform other due diligence tasks separately, which can cost extra time and money. It's crucial if you want thorough details about property records but expect additional steps and costs.

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Building Report Condition

The building report condition is beneficial if you're concerned about the physical state of the property. It reveals any structural defects or future repair needs. However, it may not uncover all potential issues, especially in hard-to-reach areas. Choose this condition if you want an in-depth look at the property's physical condition but be prepared for potential additional repair costs down the line.

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Finance Condition

The finance condition is great if your property purchase heavily relies on loan approval. It provides a safeguard and can give you time to arrange finance. However, it won't cover any physical or legal issues with the property. It's a good choice if you're a first-time buyer or limited in resources, but remember, it's only about securing finance, not assessing the property itself.

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Due Diligence

The due diligence condition is the most comprehensive. It covers multiple aspects of the property and gives you time to investigate thoroughly. However, sellers might view this condition as too broad, which could make your offer less appealing. Use this condition if you want to agree on the price and key dates first and then thoroughly assess the property. It’s beneficial for a comprehensive investigation, but it may affect the competitiveness of your offer.

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For a table summarising the difference between the above four conditions and the reasons you can cancel the agreement - Click here.

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How to get started with making a conditional offer

Buying a property is a significant step, and we know it can seem daunting with potential issues hiding beneath the surface. In this article, we've unveiled certain protective measures known as "conditions" that can act as your safety net.

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Concerned about environmental hazards or local rules? The LIM Report condition has you covered. If you're more focused on the physical health of the property, consider the Building Report condition. If securing a loan is your prime concern, turn to the Finance condition. If you want a combination of these conditions (along with any other conditions we have not discussed), then you can put these together. For a comprehensive check, the Due Diligence condition is your best bet. You only need this one condition.

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Remember, each condition serves a different purpose and choosing the right one depends entirely on your individual needs. Still, feeling unsure? Here at HouseMe Legal, we're ready to guide you through this complex process. Don't hesitate to schedule a free call with us through Calendly. Let's navigate this property purchase journey together, confidently and wisely.

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