Who Pays for Defects Found in a Building Inspection?
Your building inspection report has identified defects — perhaps even expensive ones. A common question is: does the seller now have to pay to fix them? The answer depends on the defect, your contract and where in Australia you are buying.
Does the seller have to fix defects found in the report?
Not necessarily.
A building inspection tells you about the condition of the property. It does not automatically turn every defect identified by the inspector into an obligation for the seller.
This is particularly important with older homes. A report might identify numerous maintenance items, deteriorated materials, outdated components and defects that require future repair. That does not mean the seller is automatically responsible for rectifying the entire report before settlement.
What are my options after defects are found?
Depending on your contract, the type of defect and the stage of the purchase, several outcomes may be possible.
Request rectification
You may ask the seller to rectify a defect before settlement. Whether the seller is required to do so depends on the contract and the circumstances.
Negotiate the price
A significant repair may become part of negotiations. The buyer and seller may agree on a price adjustment rather than having the seller complete the work.
Proceed as-is
A buyer may decide that the defect and likely repair cost are acceptable and continue with the purchase without requesting any change.
Consider contractual rights
Where a building or building-and-pest condition applies, the report may trigger particular rights or processes. These vary according to the contract and jurisdiction.
Can I ask for a price reduction?
Yes. A buyer can ask.
If an inspection identifies significant unexpected work, a price adjustment can be one way for the parties to deal with the issue. Instead of the seller arranging the repair, the buyer may prefer to complete the work after settlement using contractors of their choice.
However, asking for a reduction and having a contractual entitlement to one are two different things. Unless the contract provides otherwise, the seller may accept the proposal, reject it or make a counter-offer.
Know the likely repair cost before negotiating
A negotiation is much more useful when you understand the likely scope of the defect. A $2,000 repair and a $30,000 repair should not be treated in the same way simply because both appear on the inspection report.
What if the report says “major defect”?
A major defect deserves careful consideration, but the classification does not automatically mean that the seller has to pay for it.
You need to understand what the defect actually involves. Is it structural? Is it non-structural but expensive? Is the cause known? Is deterioration continuing? How urgent is the repair?
The answers can influence both the practical importance of the finding and whether it is relevant to a particular contractual condition.
What if it is a major structural defect?
This can be different, particularly where the property contract contains an inspection condition specifically dealing with structural defects.
A major structural defect can involve significant problems affecting foundations, footings, load-bearing walls, structural floor systems, beams, columns, roof framing or other structural building elements.
The exact wording of the contract is critical. A serious defect does not become contractually covered merely because the inspector uses the word “major”.
Why the answer changes around Australia
Building inspection conditions and property purchasing processes are not identical across Australia. That is why a simple rule such as “the seller pays for major defects” can be misleading.
Western Australia
Many WA residential contracts use an inspection condition concerned specifically with major structural defects. Where the condition applies, a qualifying defect may trigger a contractual rectification process. Serious non-structural defects may not produce the same contractual outcome.
Queensland
Queensland contracts commonly use a building and pest condition. The buyer's satisfaction with the inspection reports, the requirement to act reasonably and the contractual deadline can all be important when significant defects are identified.
New South Wales
Inspections are commonly obtained before exchange, although they may also occur during an applicable cooling-off period. Significant findings can influence negotiations and the buyer's decision about whether to proceed.
Victoria
A private-sale contract may contain a building inspection condition. Whether a reported defect gives the buyer particular contractual rights depends on the wording of that condition and whether the finding meets its requirements.
What about expensive defects that are not structural?
This is where buyers can easily become confused.
A defect does not have to be structural to cost a substantial amount of money.
Examples can include widespread roof-covering deterioration, significant water ingress, extensive plumbing problems, failed waterproofing, drainage problems, timber pest damage that has not affected structural elements, or substantial external deterioration.
These issues may materially affect your decision about the property even if they do not fall within a contract condition dealing specifically with structural defects.