Why Bother With A Survey?
Important Tips When Buying Residential Investment Property
Many small property developers and investors may view the prospect of
commissioning an independent condition survey by a chartered building surveyor as
just another cost further eroding margins. However, I would argue that a thorough and
detailed condition survey is a critical element of any project due diligence exercise and
can lead to a significant return on investment.
Purchasing property comes with many costs that are unavoidable including:
- Stamp duty
- Searches
- Legal fees
- Agency fees
- Mortgage or financing fees
- Valuation fees
A Royal Institution of Chartered Surveyors (RICS) Home Survey is just another cost but
one that is avoidable, isn’t it?
It is true that only around 20% of home purchasers commission anything other than a
mortgage valuation when making, what is often, the most expensive and risk laden
purchase of their life.
The percentage of property investors commissioning a survey is significantly lower
than for owner occupiers. Out of circa 450 home surveys I have completed in the last 2
years, less than 20 have been for property developers/investors. I find this to be
particularly surprising as a typical investor purchased property has a significantly
number and more serious defects or deficiencies than those for an owner/occupier.
Why is this the case? Do property investors simply believe that they know all there is to
know about building defects and standards? Or is it cost driven?
The case for commissioning an RICS Home Survey from a Chartered Building
Surveyor
A Home Survey has 3 potential outcomes:
- It may conclude that the property you are purchasing is a totally sound
investment without any need for repairs or improvements to meet current
standards or regulations. This can happen but is rarer than rocking horse dung! - The property may need a range of repairs and improvements in order to offer a
long-term secure investment. This is the outcome of most surveys. Our reports
include a cost estimate for the works and this can aid the renegotiation of the
purchase price and/or informs the investment appraisal. - The property may have such significant defects that it is best avoided or would
not have any reasonable proposition for a return on the necessary investment.
This outcome is fairly unusual but not rare.
In recent months, I have carried out surveys on the following properties:
- A typical long-time empty Victorian end terrace located in Wallasey. The client, a
start-up residential investor from a construction background had negotiated a
substantial discount from the price advertised. GDA Surveys Ltd were
commissioned to complete an RICS Home Survey Level 3 with cost summary.
The outcome was that the client was able to negotiate a further 20% off the
purchase price making the investment remain viable even with the serious
defects uncovered during the inspection. This represented a return of 248%
on the cost of the survey. - A 3-storey plus undeveloped end Victorian town house in south Manchester split
into an occupied 2-storey apartment on the first and second floors and a further
apartment under refurbishment on the ground floor. GDA Surveys Ltd were
commissioned by the investor following purchase. Our survey uncovered
numerous serious defects including: subsidence and structural instability; rising
and penetrating damp; dry rot and wood boring insect infestation and a pitched
roof in need of complete renewal. The combined estimated cost of the
necessary repairs exceeded £120,000 and had not been budgeted for in the
purchase price. What made matters worse was that the sitting tenant would
have to be re-housed whilst the work was completed.
In the property acquisition world caveat emptor (let the buyer beware!) applies unless
of course you have a surveyor to sue!
Graham Forrester BSc MSc FRICS
Chartered Building Surveyor
Director
GDA Surveys Ltd
www.gdasurveys.co.uk
https://www.linkedin.com/in/graham-forrester-bsc-msc-frics-ciwfm-8666b729/
