Everything you need to know about a pre-settlement inspection
Once settlement has taken place it's too late to complain, so knowing how to traverse a pre-settlement inspection could save thousands of dollars, some regrets, and a lot of hassles down the track.
Pre-settlement inspections are a legal right in most Australian states, and a broadly accepted activity in other states and territories.
The pre-settlement inspection, (also known as a final inspection) is the buyer’s opportunity to check the property is in the same condition as the date of sale before the settlement goes through.
Settlement denotes the legal assigning of the property from one ownership entity to another, and once settlement has occurred, a buyer has limited recourse to make any claims from the vendor.
The pre-settlement inspection should focus on four aspects:
- the condition of the dwelling (internally and externally), allowing for standard wear and tear
- the presence of all chattels (goods) as listed in the contract
- the working order of the items that were operating at the time of sale
- the house being clear of debris and belongings that are not fixtures.
While this seems straight-forward, planning for the possibilities must happen at the time of sale.
If items are damaged, missing or non-operational, the buyer must be able to prove to the legal representatives that the property has materially changed during the settlement period.
This is not always easy, but with some forward-planning, a buyer can mitigate the risks.
30 minutes to take stock
The first, and obvious task for the buyer is to capture the condition of the property in a record. This could be a series of photographs, a well-documented building and pest inspection report with photographs, or a walk-through video. It’s polite to request permission if photographing or taking videos, but most agents oblige if other buyers aren’t in the vicinity.
The second task involves the inclusion of chattels/goods in the contract particulars.
Standard terms include “all fixed floor coverings, window furnishings, light fittings and items of a permanent nature”, however these things aren’t always black and white.
A conveyancer once described the chattels to be documented as follows: “Imagine you could pick up the house, tip it upside down and shake it. The items which don’t fall out are chattels.”
But I’ve since discovered throughout the decades in this industry, that it’s better to avoid having the argument about what constitutes a chattel.
Documenting items such as ovens, heaters, air-conditioning units, ceiling fans, etc takes the mystery out of determining what a chattel is or isn’t.
Items like integrated fridges and freezers should be included too. Once a vendor has initialled these inclusions, it’s much harder for them to take the dishwasher with them when they vacate. If a vendor is particularly fond of chattel that holds personal value, they can nominate it as an exclusion in the contract. Over the years, I’ve seen items such as water features, designer light fittings, and rose bushes on exclusions lists.
Documenting the working order of appliances is a bit more challenging, and the way I do this is to video each unit while operational. Lights, stovetops, ovens, dishwashers, fans, split systems, heaters and hot water can all be captured on video. This must be done on or close to the date of sale though.
Ensuring there are no belongings or debris remaining is harder than it seems.
Vendors are obliged to take their items, but some vendors could argue some items remain, for example, subfloor timbers and bricks, junk in a garage, debris in the backyard. Inclusion of a special condition in the contract is a reasonable mitigant to this issue. A legal representative will be able to draft an appropriately worded clause.
Without such proof, an indignant vendor could argue that the house was purchased in the same condition.
Pre-settlement inspections need to be arranged to take place around a week prior to settlement. Cutting it too fine limits the vendor’s ability to fix, (or replace) items, within time for settlement.
Conducting the inspection should take between 10 minutes to 30 minutes, depending on the size of the property. A small apartment won’t take a buyer very long to check, but they should ensure they note garage/storage cages are clear, and their bins are available and stored in a suitable place.
Obliging agents may allow a greater timeframe, but it’s important that buyers provision for their inspection to be done within the half hour. For those who benefit from a checklist, itemising every room and item to check/test may help.
Reminder: the power and gas needs to be on for your inspection. You may need to ask the agent about connection, and if power and gas has been disconnected, you’ll need to arrange connection in your name for the pre-settlement inspection a few days prior.
Keep calm and carry on
If items are missing, broken, not working, or if unwanted items are left behind by the vendor, it’s important to document and/or photograph the issue. The items can then be reported with corresponding photographs to the buyer’s legal representative.
The rectification of issues isn’t always timely, and contracts provision for such challenges. Sometimes vendors will rebate an amount to a purchaser, while other times, settlement may be delayed.
It’s important to focus on keeping emotions calm and respect for the other party in check. Issues can crop up, and vendors aren’t always aware of some of these problems.
The cost of flare-ups, from litigation to emotional energy can be tough on buyers and vendors alike. I often find that the best resolutions occur when a combination of respect and a clear set of contractual obligations coexist.
A contract legal review, patience/understanding, and a clear set of chattels and conditions in the contract are my three strongest recommendations for buyers.
