Building inspections are intended to spot costly home issues, before you purchase.
Real estate industry professionals have warned they would “bet my kidney” on agents finding ways to exploit plans to force homeowners to obtain building and pest inspections.
The Allan government this morning announced they would introduce legislation forcing home sellers to provide a building and pest inspection from 2027, if they win the November election this year.
And while industry experts are broadly supportive, they’ve also raised concerns of potential loopholes and flagged that it does not address the fundamental issue behind Victorian housing market inequalities — the undersupply of homes.
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The move would shift the cost for these reports on to homeowners, rather than buyers who are currently required to spend around $500 to $600 for each type of report.
Consumer Policy Research Centre data cited by the government indicates about half of all those buying a home pay for multiple inspections when house hunting, with 17 per cent spending as much as $4200 and a similar share risking the purchase without an inspection.
A bit over one in 10 people did not make an offer on a home after receiving a building or pest inspection report.
As part of the approach the government will first develop a scheme that sets out what must be included in the inspections.
A termite inspection beneath a home, one of a variety of inspection costs that could soon shift from buyers to sellers.
Victorian Premier Jacinta Allan has announced the plan as an election promise. Picture: Mohammad Alfares/The Australian.
At present, the proposal would require the report to be completed no more than three months before the sale, but would not apply to new builds and certain other properties.
It follows a November announcement from the Victorian government that they are considering implementing a requirement for home sellers to announce their reserve price seven days before the auction of their home, as part of a wider bid to tackle underquoting.
“The status quo isn’t working,” Premier Jacinta Allan said.
“Some buyers spend thousands on multiple reports. Some roll the dice and go without.
“When you buy a car, the seller pays for the roadworthy. It should work the same way when you look for a home.”
Consumer Affairs minister Nick Staikos said the goal was to make due diligence for homebuyers “as simple and affordable as possible”.
He also pledged to make the scheme “watertight” and to ensure it “protects buyers from conflicts of interest”.
Qualified building inspections can reveal major issues with homes that may not otherwise be visible to buyers.
Victorian Consumer Affairs minister Nick Staikos believes the government will be able to make the scheme “watertight”. Picture: NewsWire/Diego Fedele.
But while supportive of the intention, the real estate industry has expressed concerns that the scheme could be exploited by sellers determined to do the wrong thing — and some warned it was still fixing the wrong problem and not helping to ensure more homes are built across the state in a cost-effective way.
Real Estate Buyers Agents Association of Australia Victorian representative Matthew Scafidi said “it’s better than nothing”, but warned there had always been a mechanic willing to “be a little more lenient” for roadworthies – and that agents and vendors would find building inspectors open to doing the same.
“If everyone has to get one, I believe they will go for the most lenient inspectors they can find,” Mr Scafidi said.
In one recent instance where a vendor had supplied a building inspection for a Ringwood home that was stated to be fine, the Abode buyer’s agent said he’d arranged his own and found issues with drainage systems and the subfloor that would have cost $50,000 to remedy.
“My concern of leaving it to the vendor is that people will get one, and if it’s not good, they will go and get another,” Mr Scafidi said.
Matthew Scafidi, a REBAA Victoria representative, has warned some vendors will simply forum shop for the best report.
Noting that vendors were never penalised, he said that so long as the agent had no knowledge of pest or building issues, it would be hard for buyers to combat such an approach.
“So, when the new legislation comes into play, the big real estate agency firms will train their staff on what to say and what to do,” he said.
“There will be ways around it. Some real estate agents can be the best loophole finders in the business. And even the best ethical ones are very good at not releasing information they don’t have to.
“Even if this came in tomorrow, I would still be advising my clients to get a building and pest inspection of their own.”
Mr Scafidi noted that an American-style system where the settlement period provides time for due diligence, such as having inspections completed, would work better.
Property Investment Professionals of Australia chair Cate Bakos said the policy would be good for sellers overall, as it would remove a barrier to entry for purchasers less willing to pay for inspections.
PIPA chair Cate Bakos has concerns agents will set up kickback arrangements with inspectors.
However, Ms Bakos said she had concerns with the three-month timeline, as a lot could change at a property in that time — especially if there was an underlying issue such as a water leak.
“But the biggest issue that I have with this is how do we vouch for the professionalism and integrity of the inspector?” she said.
“The vendor will want the most appealing report to be made available.”
The professional homebuyer said she was also nervous that it could lead to agents seeking rebates and kickbacks for referring work to builders — something that had already happened in other aspects of the industry.
“I’d bet my kidney that agents will be out there looking to set up rebate deals after this announcement,” Ms Bakos said.
Prominent property pundit Terry Ryder said the government’s idea had merit, especially if there were penalties to make dodgy reports too risky for builders to provide, and could even lead to more investors wanting to buy in Victoria — which has been scaring many away with significant tax and compliance requirements beyond other states for landlords.
Hotspotting founder Terry Ryder supports the government’s plan, but believes it is fixing the wrong problem and should be focused on getting more homes built for less.
However, Mr Ryder said the proposal was fixing the wrong problem.
“These things are positive in themselves, but they are not making the change that’s actually needed,” he said.
“They should put the energy into dealing with the shortage of supply and the costs of providing it.”
He said the Victorian government had made itself an “annoyance” to investors and many in the property industry, while also having the highest taxes in the country.
“But that’s not dealing with the real issue — and that’s having more homes,” he said.
The Real Estate Institute of Victoria said they welcomed the announcement, a concept that their own strategic working group had suggested to the government earlier this year as part of measures to address underquoting and market inequalities.
However, despite including it in their A Blueprint for Marketing of Residential Real Estate in Victoria, they have urged the government to go further.
REIV chief executive Toby Balazs supports the initiative, which the REIV proposed earlier this year, but says it needs further changes to be made to work well.
REIV chief executive Toby Balazs said while the pleased with the announcement, noted it needed to be a change made in concert with other updates to how homes are bought and sold.
“The government’s willingness to accept our important recommendation regarding the inclusion of building and pest inspection reports in vendor’s statements, and the positive impact this will have on prospective buyers, is encouraging, but it’s only a first step,” Mr Balazs said.
“Central to the REIV’s blueprint is striking the right balance between supporting the interests of both prospective buyers and vendors in the context of residential property transactions.
“This means government avoiding a heavy-handed approach that places an excessive regulatory burden on vendors, while not adequately protecting their fundamental right to achieve the best possible sale price.”
Other recommendations include revising a seven-day reserve price disclosure requirement announced by the government in November, down to three days.
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