Getting Risk Right when Buying

Under a standard contract for houses and residential land in QLD

Under a standard contract for houses and residential land in QLD (at least, the standard contract for now), the property is at the buyer’s risk from 5pm the next business day after the contract date. What does that mean? Well, technically, should anything occur to the property from that point, it’s the buyer’s problem, not the seller’s. And as such, you would want to have insurance in place to cover that risk, just in case something hits the fan between signing and settlement.

If the buyer has insurance though, does that mean that the seller can cancel theirs? They could, technically, but its very rarely a good idea. First of all, as all us lucky mortgage holders would (or should) know, as a condition of your mortgage, you must hold sufficient insurance over the property. Letting that lapse could put you in the position of being in breach of those obligations.

Secondly, in almost all instances, a contract is still conditional at the time it falls under the buyer’s risk. Should something go terribly wrong with the property (fire, flood, vandalism etc.) then it arguably wouldn’t be all that difficult to terminate, whether it be under cooling off period, finance or building and pest. A terminated contract leaves things squarely back with the seller, who would want to have coverage in place.

Thirdly, even once unconditional, there are times where a dramatic change to the condition of the property can provide an opportunity for termination by either party. I can promise you, at what everyone assumes is the tail end of a contract, when everyone is looking forward to the finish line, one of the LAST things you want to add to the mix is arguing over who is responsible for damage or worse. Arguing over whose insurance excess kicks in is quite enough.

Now, acknowledging you need the insurance is one thing, but putting it in place can be another. With insurance premiums getting a bit wild, particularly in more flood affected areas, it can pay to do your research in advance to work out what your likely costs are going to be. After all, if one house is going to cost you $3,000 a year and another $6,000 – then that’s going to be a factor in your budgeting and might sway you from one property to another.

As always, whether its insurance or getting the right advice around a contract – talk to the right experts, be it a broker or conveyancer.