Should I buy a doerupper as a first home?
Is the chief executive of the Real Estate Authority. She answers your house buying and selling questions.
Q: I’m in the market for a house and I’m looking for a good deal on a property that needs renovation – a doer-upper, you might say – so that I can get a foot on the property ladder and add value.
I’m not planning on flipping the place quickly; I want to live there. But I want to make sure I know what I’m getting into in terms of the renovation project. How do I make sure I’m getting all the information I need in terms of the condition of a place and what it’ll take to renovate?
It's great to see that you’ve recognised the value of having in-depth property knowledge before you buy. Sometimes buyers quickly fall in love with a property, driven by a vision for how they could transform it.
Then, not wanting to miss out, they skip some of the important pre-purchase work that reduces the risk of taking on more than they bargained for in terms of a renovation project. Happily, REA’s consumer research suggests more New Zealand real estate buyers are investing the time and money into doing their homework, and we want to see this trend continue.
The purchase price of doer-upper homes tends to be cheaper than new or recently renovated homes of a similar type in the same area. However, while this can present an affordable opportunity, you will need to factor in additional costs for renovation work.
The key, therefore, is to have the best possible information and understanding of what you’re getting into, and what your priorities are, so that you can manage costs in a way that works for you. There are several key steps you can take to ensure you have done all the necessary homework before you make an offer.
START WITH REA’S PROPERTY CHECKER
As an initial step, have a look at the free
Property Checker tool on REA’s consumer information website, settled.govt.nz.
This simple online tool asks for basic information about the property, (such as building materials, location, the approximate date of construction, or whether there appear to have been extensions). It will use this information to produce a tailored report listing potential construction, condition, and environmental issues for the type of property you’ve described, recommending that you check or investigate these more closely.
For example, if you tell Property Checker that the house is made of wood and built in the 1950s, the report will suggest checking for things like lead-based paint, borer damage, and the type of timber used (some require more maintenance than others).
If you say the house is on a slope, Property Checker will advise looking for cracks in foundations that may indicate subsidence in the past. Bear in mind that this is designed as a starting point – it isn’t a comprehensive report on the specific property but is built solely from the information you provide.
Having a Property Checker report on-hand when you’re viewing a property gives you a valuable list of things to check over in-person, and to discuss with the licensed real estate professional (or vendor if it’s a private sale).
SPEAK WITH THE LICENSED REAL ESTATE PROFESSIONAL
Under the Code of Conduct REA oversees; licensed real estate professionals (licensees) must disclose to prospective buyers any known defects with a property they have listed. Licensees are also expected have a good understanding of the potential hidden defects with a property (such as weathertightness issues with certain building materials).
With that in mind, if you are interested in a property, it’s a good idea to have detailed conversations with the real estate licensee acting for the vendor about the condition of the property. Be sure to get confirmation in writing of what you discussed, and what issues have been disclosed to you.
It may be reasonable to expect that when a property is being marketed for its renovation potential, the vendor and their real estate licensee will have endeavored to gain a thorough understanding of its condition.
However, real estate licensees are not building and construction experts. While detailed conversations with the vendor or their licensee are important steps towards knowing the property, REA advises buyers to also get their own professional advice and information.
CHECK THE PAPERWORK
You can obtain a Land Information Memorandum (LIM) about a property from the local council – this provides a summary of property information they hold, which can include permits and consents granted for any work on the property, information on the area’s flood risk and zoning information.
You should also undertake a title search with Land Information New Zealand (LINZ)
for detailed information on the property, such as the type of ownership, boundaries and any rights or restrictions. You might also like to use Toka Tū Ake EQC’s new Natural Hazards Portal – you can look at past EQCover claims to see how previous events have impacted a property.
This information will assist you to consider the questions you need to ask about the property and any if remedial work is necessary.
GET PROFESSIONAL ADVICE
You can obtain all the important documentation yourself or engage a lawyer, or conveyancer, to help you. For example, they can review the relevant documents to
help you understand details and identify risks. They will also guide you through the Sale & Purchase Agreement and the settlement process later.
Also consider obtaining a building report from a qualified and accredited property inspector. While always highly recommended, this report is essential when buying a renovation project. Sometimes vendors may provide a recent building report, but it’s important to know that getting your own inspection provides you with more legal protection if things were to go wrong later down the road.
We recommend you choose a property inspector who has professional indemnity insurance and carries out their work in
accordance with the New Zealand Property Inspection Standards.
Once you have in-depth knowledge of the property’s condition, you may also want to get advice from a builder (or builders). They can help you get a sense of the time and costs involved in getting the property to the condition you want it to be in. Note that your bank, or other lender, and your insurer may also want this type of information before confirming your finances and insurance information. Before you make your offer and engage in any subsequent negotiations; obtain and carefully consider all this information.
Be sure of the work involved Finally, if you’re keen to go ahead with
your doer-upper, it’s a good idea to think about how you’ll approach the project, what your budget and your contingency for unexpected costs are, how quickly you want to complete the work, and what the impact on your life will be. Renovating a ‘doerupper’ can certainly be a satisfying and rewarding project. Ultimately, one of the keys to success is understanding in advance the condition, potential, and risks of the property. Good luck and enjoy the journey! For more information about the process of buying or selling property – and what to expect when working with a real estate professional – visit settled.govt.nz. Have a question for Belinda? Email homed@stuff. co.nz.