People we know recently sold their Auckland home by auction. Even though they were told there were 7 or 8 interested parties they were a bit worried because there were no building reports commissioned at all. However, on the day there were indeed 7 parties bidding for the home which eventually sold for over $1,000,000 despite not 1 building report commissioned.
7 parties were willing to spend over $1,000,000 without knowing the condition of the home they were buying, or additional money that might need to be spent fixing things on the home. This has become a worrying trend, particularly in the Auckland market for a variety of reasons.
Firstly, people are often pushing themselves to their maximum budget to purchase the home, leaving nothing in their budget or reserve for any urgent or significant remedial work. Furthermore, it tends to leave little if no money for ongoing maintenance to protect their asset and ensure their health and safety.
The Building Research Association of NZ (BRANZ) suggest as a guide older homes from the 1940’s back should budget around $11,000 pa for maintenance decreasing to around $2,000 pa for homes built within the past couple of decades, “leaky” homes excluded.
The BRANZ home condition surveys in 2005 and 2010 show a downward trend in the condition of NZ homes, such that you have less than a 50% chance of finding a home in good condition. It trends more towards 60% of homes will likely have urgent or remedial work. From our client’s experience, this can easily equate to $20-$30,000 for a home considered in average condition, upwards of $50,000 for below average, through to $100,000 upwards for poor condition. A home subject to weathertightness issues, can easily equate to $250,000 upwards for remedial costs.
We tend to be a nation of “she’ll be right” people, ironically reflected in the BRANZ survey where 80% of home owners believe their home is in good condition, despite the survey statistics stating otherwise. You only have to read through the real estate pages to see a large majority of homes are presented as being well maintained, renovated to the highest standard or having great bones. All research we’ve found does not statistically support these unqualified sources of condition. It is more frightening when these claims are made of plaster clad homes as well as the calibre of reporting used to support some of these claims.
While supply and demand can result in extraordinary capital gains, which many people seem to rely on, at some point condition does play a factor on market value, as well as the health and well-being of the occupants.
If homeowners are simply not spending the necessary funds to maintain their homes resulting in a general downward trend in condition of the NZ housing stock, what is that housing stock going to be like in the next 5 and 10 years?
Only you can weigh up the cost of buying a home with a potential immediate repair bill of $20,000 to $30,000 (if lucky) or more, versus the comparatively miniscule fee of $700 to $800 per house to know what you are taking on. It is important to remember that information will only be as reliable as the author, so ensure you use an Accredited or Registered Building Surveyor.
So considering all these factors and our experience of 15 years providing Standard compliant reports, I reckon the odds of buying a home without a building report and not being shot in the process has about the same odds as playing Russian Roulette with 4 bullets in a 6-chamber gun.