Forums / Property Investing / Help Needed! / RE: Urgent – bad strata report – within 5 day cooling off period – cracking & water penetration problems

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  • Profile photo of NSW2011NSW2011
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    @nsw2011
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    Hello,

    I'm a nerve homebuyer so please be gentle  I have put in an offer to buy a 3 year old property. The strata report has come back and there are issues relating to cracking and water penetration. Those two words fill me with dread as I inspected a property which had $30k of special levies to fix that problem. The owners have been surveyed and the owner of my property and he reported cracks in the ceiling of the kitchen, warped doors in the laundry and bedroom.

    The lady who did the strata report says that because the building is less than 7 years old, the builder may be liable to fix these problems. However, there would need to be a $20k report commissioned and an engineer needed to check the work once it is eventually completed and that there may be a special levy issues. At the moment there is $60k in the sinking and adminstrative fund which doesn't seem to be a lot. She agreed.

    In addition, she said it may take a while as he may not admit responsibility and then the insurance company would need to be contacted and if things were not settled at that stage, a complaint would be lodged with the Dept of Fair Trading. It just seems like a very drawn out process and I'm not sure how these problems will affect the property should I choose to rent it out in a few years. I will be an owner occupier.

    There has also been a significant increase in the administrative fund from $495 to $646 (difference of about $150). With the sinking fund, this is a total of about $775 which seems quite expensive for a building that does not a gym or pool. It only has lifts, common areas, gardens and so forth. I don't know whether they have upped the fees because they know they have expenses to come but wouldn't this come out of the sinking fund?

    My five-day cooling off period ends on Tuesday 28th June so I have time to pull out of the deal. My conveyencer says I have three options; pull out of the sale & obviously lose my deposit plus I've paid money for the strata report, building & inspection & conveyencer fees, speak to the agent & negotiate the price down or proceed with the sale.

    Any advice would be helpful esp with speaking with the agent and if I was to negotiate the price down, by how much? I am admittedly inexperienced with these things and I don't have all the information I need to make an informed decision. The lady who did the report says the strata manager probably will not speak to me as I'm not an owner and they are also changing strata management companies in the next month.

    NSW2011

    Profile photo of luke86luke86
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    @luke86
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    Water penetration and cracking issues are very difficult to fix. If there are warping doors and cracked ceilings then this could mean bigger underlying problems. Fixing waterproofing issues can be extremely expensive, and you sometimes don't really know how much of a problem it is untill a contractor startes digging up planter boxes and removing sections of walls to look at the flashing. If the structure is reinforced concrete (which it sounds like it is), then fixing warping/jamming doors is very expensive to fix, and may be an ongoing problem for the enture life of the building. It also indicates really poor standards of construction so I would be very concerned with the quality of the building- warping and jamming doors should never be a problem in this type of structure. The cracking problem really depends on what type of cracking it is- minor cracking of concrete is not unusual, however cracking of render or brick walls is a big problem expecially seeing as the building is relatively new.

    It sounds like a nightmare of a building, and not one that I would buy into. If it is still within the cooling off period, I thought you could get a full refund on the deposit??

    Cheers,
    Luke

    Profile photo of Scott No MatesScott No Mates
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    If you recind the contract, a charge of 0.25% of the purchase price will apply, this may be peanuts compared to the legal costs in the future esp if the builder declares themselves bankrupt/dies/refuses to do the repairs.

    You only mention the strata report – was a building report done as well? What was the buidling surveyor's feedback?

    In light of the expected costs, you could either pull out or start some negotitations on price to cover the loss of value and foreseeable consultancy/expert opinions/legal costs in relation to the repairs.

    Profile photo of NSW2011NSW2011
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    Thank you very much for your responses. I've just been reading another document I sent. Some points taken from there:

    – says there is little point in wasting funds trying to get money from the builder because they are unlikely to be successful and suggests instead to create a maintenance plan. Says both builder and developer are in adminstration.
    – says the issues are localised and not systematic and that isolated repairs should be done
    – says there should be an integrated maintenance plan
    – says an amount of approx $50k is anticipated (the lady who did the strata report says they need to get an engineer's report which may cost up to $20k)
    – at first instance a special levy may be required in light of the current savings ($60k) and the action plan

    I got a building and pest inspection done. There mention of cracks in the walls in the laundry and the real estate told me the owner fixed a crack in the kitchen area and has just recently repainted the apartment (another story but he didn't want to sell, not sure why). When I questioned whether I should be concerned about the cracks, I was told no. I will speak to him again.

    Profile photo of luke86luke86
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    Hi,

    Just a word of caution- dont listen to everything the real estate agent says. He is just trying to make a sale, and if you dont buy the apartment he will not get a comission. So of course he will tell you that there are no probelms with the apartment because if you dont buy it he doesnt get paid!!!!

    One thing you should consider is how many apartments are in the building? If there are 100 apartments and you are faced with a $100k repair bill then that is not a big deal. But if there are only say 15 apartments in the building, then a $100k repair bill is a big problem.

    Cheers,
    Luke

    Profile photo of luke86luke86
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    Also can I ask what state the building is in? I am a structural engineer and the organsiation I work for does building condition reports all the time, and $20k sounds way too much to be paying for a report.

    Cheers,
    Luke

    Profile photo of NSW2011NSW2011
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    Thanks for your response Luke. The building has 83 units and it is in NSW. The lady who did the strata report mentioned that figure as a maximum but said it might be $10k. If I had a crystal ball, it might be handy :-) Just rang the building inspector, he said he did not see evidence of warped doors and or any signs of moisture in the apartment. It may have been fixed by the owner before the property went on sale perhaps?

    Profile photo of luke86luke86
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    NSW2011- I just sent you a PM.

    Cheers,
    Luke

    Profile photo of ALF1ALF1
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    @alf1
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    Hello NSW2011.
    How, from a legal standpoint, can you possibly lose your deposit should you decide to cool off during your legislated cooling off period? Answer: you can't. Your deposit is deemed 'consideration' under contract law and is used to enforce a contract between a seller and buyer AFTER the expiration of cooling off. You do not need any reason to cool off under a real estate sales contract as cooling off (which varies in times from state to state) has been a fundamental tenet of real estate purchases for some time now so people such as yourself are given time to fully consider the significant purchase you are about to make, make relevant inspections and enquiries of professionals, and so on. From what you have said you have already expended some significant monies in prospecting the viability of this purchase. My humble personal suggestion is to cool off, have your deposit refunded in full, and seek greener property purchase pastures.

    Profile photo of Scott No MatesScott No Mates
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    Anthony, as far as I am aware, in NSW the cooling off clause specifically states the penalty of .25% of the contact value. The consideration is paid for the exclusive period for investigations

    Profile photo of ALF1ALF1
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    Thanks Scott – your wisdom and knowledge is always appreciated – even if you're opinionated.
    One of these days I'll have to get accreditation for NSW's – you simply can't know ALL the individual state laws. However, for the benefit of NikNak, I still believe 'tis better to cut one's losses now than reap a potentially bad harvest that make the cost of the seeds look insignificant – if you understand my analogy!

    Profile photo of NSW2011NSW2011
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    Thanks for all your responses. I'll change states although I think I prefer NSW's 5 day cooling off period rather than VIC's 3 day period? I think that's correct :-)

    The report says that the membrane is defective and that flashings require attention. The solicitor says the problem seems to be localised and not systematic but says there are breaches of the Home Building Act but hey forget about getting any money back from the buyer or developer, just 'own' the problem and fix it. I don't know why he doesn't suggest going through insurance but says pursuing the builders is a waste of money.

    The agent has spoken to the vendor and he said he's fixed most of the problems he submitted in his survey and he's listed jamming doors, broken exhaust fan, cracks on walls, paint work, sliding shutters, jamming, just to name a couple. I mean isn't that a lot of problems for a 3 yr old apartment? He's obviously Mr Fix it but I'm far from that!!!

    There are commercial buildings located underneath the property such as restaurants etc. I think I might pop down and speak to them tomorrow and try and get more of a grip on the problem? There seems to be a problem with every single property I've inspected in Sydney. I know older properties are sometimes a lot better than new but new properties offer security which older properties don't always do.

    I just wish they had already ordered the report and I knew what I was in for exactly. I'm not looking for a perfect building but I don't want to be constantly opening my wallet either. From the responses I have received, it doesn't seem that I'm being over cautious?

    Profile photo of BluegrassBluegrass
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    NSW2011
    Exercise your cooling off option NOW!
    The building is a lemon, if it is 3 years old it will be a lemon tree by the time you stop spending money on it.
    The agent is not to be trusted in this case. They would have known the condition.
    If you want to give money away, I can get you millions of bank accounts to put it in.
    Cooling off means that, you have cooled on the purchase, you see too many problems and you want to cool your heals and regroup.
    Bluegrass

    Profile photo of WomeninPropMelbWomeninPropMelb
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    Scott and Anthony et al- cooling off in Victoria is 3 days. You can cool off in 3 days- that is you can end the contract in 3 days using the cooling off period and pay 1% or it might be 2% of the price for no reason other than you just decided not to go ahead. HOWEVER, Anthony IS right – as per Victoria. You can end a contract within the “subject to ..” clauses up until the conditional period ends WITH NO PAYMENT. That is standard contract law- you have an agreement “subject to” certain conditions. If those conditions are not met- ie building and finance, then you can effectively end the contract. It is different in NSW because as I understand it, you have to get a building and pest inspection completed BEFORE you make an offer.
    I’d suggest that yes, this property is causing too much concern from the outset. As a first home buyer, look for something that is simpler, less issues. The cost of ending the contract now, is far less than the stress and headaches this property has caused you. You could go ahead and use it as a learning experience but this one is possibly a “non-cost effective” learning experience, one that once in, you cant walk away from for a loooong time. Do you want to be tied into this? And what if you want to sell? You will have the same issues this owner is having in selling this time. Do you want that?
    As far as the agent is concerned- an agent is liable to tell you if they know anything. The don’t just “tell you anything to sell”. The agent has a duty of care to tell you what they know. The agent is an agent for the vendor- he will only disclose what the vendor tells him. An agent is qualified to sell- not to advise you on building aspects and whether it is sound or not. Dont listen to the agent – not because they “tell you anything” but because you need to listen to someone who is qualified to give you the advice on the building structure. That is not the agent.

    Profile photo of Scott No MatesScott No Mates
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    WomeninPropMelb wrote:
    …It is different in NSW because as I understand it, you have to get a building and pest inspection completed BEFORE you make an offer.

    It is not a prerequisite to have these done in NSW before making an offer – the cooling off period allows the purchaser to retract from the contract within 5 days for a minimal penalty (0.25% of purchase value).

    Where the purchaser has undertaken Pest & Building inspections prior to making the offer, then it is usual to sign a S66W waiving the cooling off period.

    Profile photo of NSW2011NSW2011
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    Thank you for all your responses. Is there such a thing as a perfect building in Sydney? Every single building I've inspected has had all sorts of problems.   I've pretty much made up my mind to not buy the property but I will try and ring the architect and the engineer who wrote these reports on Monday and see if they will speak to me about the extent of the problems to have peace of mind for myself that I'm making the right decision. It has taken me a long time to get to this point.

    I think next time as it's quite an expensive process, before I make an offer I will take a look at the strata reports myself. I've done it before and it doesn't cost that much. It's more time consuming than anything but I may be able to spot whether a special levy has been or is about to be issued and if they have any major works planned or there are major problems with the building. I'll still get a professional strata report done if I decide to put in an offer in. If possible, I'd like to get a strata report before I get a building and inspection report but that can be hard to coordinate in 5 days.

    The real estate agent said to me that a lot of people don't do reports. I wasn't sure how I was supposed to respond to that? That's why it's so difficult to buy property as a first time buyer because you are dealing with people who do not educate themselves about the property and buying it on face value whereas I'd negotiate down if there was a problem or choose not to buy it at all. I am commitment phobic and risk adverse and it's taken me a while to get this far … sigh. Back to the drawing board.

    PS. WomeninPropMelb – it looks like a great networking group. I'd attend if I was in Melbourne :-)

    Profile photo of NSW2011NSW2011
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    Update: I spoke to the engineer who did the initial report in 2009. He did the report as part of an insurance claim. He remembered the building quite well and told me to be careful which I took to mean stay the heck away from that building! He said that there are definite water penetration problems and the cost of fixing it would be in the realm of $300k – $400k. I said that they don't seem to want to acknowledge they have a problem and he was in kind of disbelief about that. I was very happy he spoke to me because I didn't think he would.

    I also spoke to the architect before him who is an interesting character. He said to me that he looked at the building and that there wasn't any major problems with the building and that about $50k would cover it. He also said on top of the $150 extra for the admin fund, there would also be a rise in the sinking fund and he thinks an appropriate figure would be $5k/yr (currently $2,584). He was a very strong character and I believe it would be difficult to convince people we should get an independent engineer report and waterproofing report as the engineer suggested.

    I spoke to the agent to give him a courtesy call to let him know I was resciding the contract. I could have got a price reduction of at least $5k but in the end decided I'd only be breaking even and it wasn't worth the hassle. The owner's corporation did not seem to recognise there was any problem so that was the first hurdle I'd have to overcome let alone trying to convince everyone to pay for the repairs. And the more they prolong repairing the building, the worse it will obviously get and lead to an even bigger expense.

    The agent gave me a major guilt trip about how they had an offer for $8k more but took my lower offer instead and said that he could sell this property for a much higher amount. I said of course you can because you have already told me most people don't do checks and people in Sydney are stupid but I thought I paid a reasonable price for the property and that was all I was prepared to offer. Up to them whether they accept it or not.

    Thus, I've rescinded the contract. The conveyencer hasn't mentioned any additional fees as yet and the invoice for the strata report was emailed directly to me (worth every cent) and was $40 under the quote so I'm about $2k out of pocket. I will use a different building inspector next time as they didn't pick up any of the problems, only drummy tiles and I'm not convinced they did the best job.

    Profile photo of WomeninPropMelbWomeninPropMelb
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    Don’t take on the agents guilt. Let him sell it to the higher offer. $5K less is NOT worth it for what you have encountered already.
    There is always another deal around the corner.

    Profile photo of NSW2011NSW2011
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    I don't know it it's that easy to find another apartment in my budget in Sydney as it's so expensive and so competitive but as they say, when one door closes, another door opens :-) And I agree that $5k is not worth taking on this headache especially when this architect is telling them it is not a problem. Thank goodness for forums like this!

    Profile photo of WomeninPropMelbWomeninPropMelb
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    The problems you have encountered are the reasons it is cheap. But you will be glad you moved on in the long run.

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