Due diligence that should be done by a purchaser prior to buying!
Due Diligence For Home Buyers: Things Lawyers Want You to Know
Buying a home is an exciting process that can quickly turn into a nightmare if you fail to do your homework. Picture this: you have been searching forever and finally found your dream home. You did not want to spend time or money on home buyer due diligence. You buy the house and move in… and the heat does not work in -30 weather. Fortunately, this can be avoided if you conduct proper due diligence. The real estate lawyers at Kahane Law office can help you understand the important aspects of home buyer due diligence.
In real estate transactions, the onus is generally on the buyer to do due diligence. The doctrine of “caveat emptor” applies which is Latin for “buyer beware”. In other words, the buyer must inspect the property and ask the vendor questions before buying the home. This is home buyer due diligence. After signing the purchase contract, if you discover that the house has a defect that would have been visible (or could be discovered easily) during an inspection, it is likely that you will be stuck with paying for the repairs. Please Note: Of course no list, including this one, is ever 100% comprehensive. Ask your real estate agent and / or your lawyer about any specific concerns BEFORE you sign the contract. We work with you to protect your interests!
The Importance Of Inspections
In Alberta, the home buyer due diligence stage of a real estate transaction is crucial to a successful home buying experience. Before buying a home, you need to know what condition the home is in to avoid unwelcome surprises. Usually your real estate agent will list the home buyer due diligence that you want to do as “conditions”. The whole contract is conditional on your satisfaction with your home buyer due diligence. While not legally required, we strongly recommend that you hire a qualified home inspector as a part of the due diligence. Please note: the current contract used by real estate agents requires that you use a licensed inspector. To help you make an informed choice when buying real estate, here are the top ten things you should pay attention to when doing your due diligence.
1. Hire A Qualified Home Inspector
Before taking the plunge, make sure you hire a qualified home inspector. Home inspectors are licensed and may be part of their professional association. We always recommend getting a full home inspection completed by a professional before removing conditions in your offer to purchase. Before starting the inspection, your home inspector should give you a copy of a signed contract that outlines what will and will not be included in the inspection. The inspector should walk you through the home and point out any visual issues. Expect this to take about two hours. Once completed, the inspector must give you a written report detailing the results of the inspection. The current AREA contract has a specific term that you must use a licensed home inspector: not your friend who is a trade.
Tip: After receiving the home inspector’s written report, you can bring these issues to the seller’s attention and negotiate a better deal for your home.This does not always work but at least you will have a better idea what you are getting for your purchase price.
2. What Do Home Inspections Actually Inspect?
The following items should be inspected and included in our home inspection contract (unless you agree by initializing which items are excluded from the inspection): driveways, walkways, roofing, chimneys, retaining walls, patios and decks, structure, electrical systems, heating, heat pumps and cooling, insulation, plumbing systems, exterior (including lot grading) and interior. Ask the inspector what is included. If something is missing… read #7 below.
3. Are Outbuildings Included In My Inspection?
The short answer is sometimes. Often inspections lack a review of outbuildings. Specifically, while carports and garages are usually included in inspections, outbuildings and unattached structures are not. Want those inspected? Make sure to speak with your home inspector to add it to your contract.
4. What about Lead, Mold, Air Quality and Asbestos?
Mold, air quality and asbestos can impact your health. Mold can also cause serious structural damage to your home. Because home inspectors perform a visual inspection of your home, sometimes no ability exists to visually discover these health hazards. Their inspections include limitations. Ask about them to determine if any other tests or conditions you wish to include in the contract. In other words, home buyer due diligence may include additional work.
You and your home inspector should pay attention to any spotting on the walls or floors, a leaky roof, water seepage and water stains as this could indicate the presence of mold or water damage. Your home inspector should be able to check for any material containing asbestos.
Sometimes, your home inspection contract usually does not include testing for asbestos, mold and air quality. Recently lead in drinking water pipes made the news and people want due diligence around that issue. If these are important issues to you, add specific conditions to the contract for further inspections to confirm if these health hazards are present in your home.
5. Look At The Real Property Report
The Real Property Report (RPR) maps out the boundaries of the property and any structures (such as walkways, garages, and patios), right of ways, and easements on the land. Make sure it has a Certificate of Compliance. The Certificate of Compliance (Certificate) is a stamp that verifies that all items on the RPR comply with the City’s bylaws. Reviewing your RPR and Certificate ensures that you know where the property’s boundaries are and allows you to assess whether all the structures on the land are located within the property borders. While at it, also make sure the structures comply with any restrictions listed on title to the property. For example, these include such things as types of fence, paint colours or limitations on the location of any garage.
For more information about real property reports, click here.
6. Ask The Seller About Any Problems With The Home
Sellers have a legal obligation to tell you accurate information that they know about the property…. if you ask. The
re are some problems, material latent defects, that they have to disclose. Legally, sellers must not conceal any known defects that cannot be detected through a careful visual inspection of the home. It never hurts to specifically ask the questions though. Were there any leaks, sewer backups, was the house a former drug house, unnatural deaths, anything that is important to you. Make sure to ask questions in writing or through e-mail in order to protect yourself should the seller make intentionally false statements to you. If a key point, ensure to add a seller representation and / or warranty into the contract.Tip: If there are existing tenants living in the home, try to meet with them to ask if there are any issues with the property. Also, talk to the neighbours… they like to share lots!
7. What Other Types Of Inspections Are Available?
If you want additional home buyer due diligence to ensure that your home will not have any major defects, you can consider hiring qualified professionals to conduct further inspections and testing. Have your real estate agent write these into the contract as additional buyer conditions. Common services include:
- Electrical Inspection: an inspection on the house’s electrical components;
- Engineering Inspection: an inspection performed by an engineer on the structural integrity of the house;
- Furnace and Chimney Inspection: an inspection confirming if the furnace and chimney meets current safety standards;
- Sewer Inspection: an inspection that tests the functionality and structural integrity of the sewer line;
- Review of the registrations on title, so you understand restrictions on the property;
- Air Conditioning Inspection; and lastly
- Well Water Inspection: if buying an acreage, you will be responsible for your own water supply and sewage system so it is important to verify that the water is potable and bacteria-free.
Tip: Remember to do your own inspection too. For example, try out all the taps, flick on the lights, and flush the toilet to ensure everything works. Home buying is often a fast process when you find a home you love. Pay attention to the paint, carpet stains, and other wear and tear.
8. Home Buyer Due Diligence For Condos: Condo Document Reviews
Condo documents tell you about the condo board’s financial resources and effectiveness. These documents can include information on financial statements, budgets, board meetings, engineer reports, by-laws, and owner’s obligations. Reviewing these documents is a key part of home buyer due diligence.
Once you become a partial owner of the condo corporation, you will be partially responsible for any repairs. Make sure to obtain and review the minutes of the condo corporation meetings for the last couple years as this will alert you to any existing maintenance issues. You should also ask for receipts from past major structural repairs to help you predict future maintenance costs.
Learn more about Condos and important part of condo documents here.
9. Newly Renovated Home? Get a Permit Check
If improvements have been made on the home, you should find out if proper permits have been issued for work in progress or completed work. To check if the home has proper permits, contact the City of Calgary’s Planning Services Centre or your MD if outside the city. If permits have not been obtained for the renovations, the homeowner may be subject to fines by the City inspector, face issues with home insurance claims and incur costs related to reversing the work already completed. Getting permits after completing work on the home is possible, but the cost is usually much higher.
10. Next Steps After Planning The Home Buyer Due Diligence
Ask Kahane Law’s real estate lawyers to review the contract before signing with your realtor. We are here to help if there is anything you are not sure of. This way, we can help you include any conditions the agreement is subject to. Common conditions include property inspection, approval of financing, and lawyer review. Also, do not just expect that appliances, such as the refrigerator and stove, automatically for part of the inclusions as part of your purchase. Always ensure drafting these items specifically written into the contract. Call us anytime for help. After the execution of the contract by both parties, it is much harder to make changes!
Legal Help From Home Buyer Due Diligence Real Estate Lawyers
When finalizing the purchase of your home, ask us to review all your legal documents before waiving any conditions. Most people do not, but we are happy to. These documents include the registrations on title, the purchase and sale agreement, and the real property report. This is extremely important to help you avoid the unexpected – for example – registrations on your property’s title may reveal restrictive covenants that prevent you from using the land in specific ways.
The experienced real estate lawyer team at Kahane Law Office in Calgary look forward to answering your questions about property contract considerations. Call today! 403-225-8810 or email us directly here.