Section 137B Reports: The Hidden Risk Lurking in Your Property Purchase
In This Week’s How's The Market | Edition 130
What Is A Section 137B & How Can It Affect You
English Elegance with a Designer Perspective
Warnings $500 billion could be wiped from property values by 2030
Section 137B Reports: The Hidden Risk Lurking in Your Property Purchase
Picture this: you've just bought your dream home in Melbourne. The kitchen renovation looks stunning, the new deck is perfect for entertaining, and you're already planning your housewarming party. Then, six months later, you get a letter from the council about unauthorised works. Your insurance company won't cover storm damage to that beautiful deck. And when you try to sell in a few years, every potential buyer's lawyer flags the same issues you're now facing.
This scenario plays out more often than you'd think, and it usually starts with something called a Section 137B Report that was sitting right there in Section 32 - overlooked, misunderstood, or simply dismissed as "just another bit of paperwork."
What Exactly Is a Section 137B Report?
Under Victoria's Building Act 1993, when someone does owner-builder work and then sells their property within 6 years and 6 months, they're required to provide a Section 137B Defects Report. This report must be prepared by a registered building practitioner - typically a building inspector or surveyor - and its job is to list any visible defects in the work.
The key word here is "visible." This isn't a comprehensive assessment of whether the work was done properly or had proper council approval.
When Do You Need One?
You'll encounter a Section 137B report when the previous owner carried out building work - with or without permits - and they're selling within that 6.5-year window. This applies whether they did the work themselves or hired builders who worked without permits.
The trigger isn't just major renovations. Converting a wardrobe into an ensuite, building a deck, or adding an extension can all require a Section 137B report if multiple trades were involved.
What a Section 137B Report Won't Tell You
Here's where things get concerning. A Section 137B report doesn't confirm that council approval was obtained. It doesn't guarantee the work meets building codes. It doesn't cover hidden defects like waterproofing issues, structural problems, or faulty electrical work.
Most importantly, warranty protection only applies if the works cost over $16,000, are sold within 6 years and 6 months, AND the vendor took out mandatory domestic building insurance. If they didn't - which happens more often than you'd expect - you're left without a safety net.
The Real Risks You're Taking On
When you see a Section 137B report in a contract, you're potentially inheriting several serious risks:
Council Risk: Local councils can issue notices requiring you to obtain retrospective permits or, in worst-case scenarios, demolish non-compliant work. I've seen buyers face $20,000 to $80,000 in rectification costs.
Insurance Risk: Your home insurer may decline claims if problems arise from unauthorised work. That beautiful deck that collapses in a storm? If it wasn't built to code, you might be paying for repairs yourself.
Resale Risk: When you eventually sell, future buyers and their lawyers will raise the same questions you're dealing with now.
Finance Risk: Lenders and valuers can be cautious about properties with unauthorised works, potentially affecting loan approval.
A Real-World Example
Let me share a recent case from our files. We were looking at a property in Wantirna South where the vendor disclosed owner-builder works: construction of a deck roof and associated renovations valued at over $16,000.
The catch? No building permit was obtained, and no Domestic Building Warranty Insurance was taken out. The special condition essentially said our client would accept the works were done without permits or insurance, have no warranty cover, and couldn't make any claims against the vendor.
In other words: "You're buying this as-is, and if anything goes wrong, you're on your own."
The Bottom Line
A Section 137B report should be treated as a red flag to dig deeper, not a green light to relax. Sometimes the issues are manageable - maybe it's just cosmetic defects on work that was properly permitted and insured. Other times, you're looking at a ticking time bomb that could explode into tens of thousands of dollars in costs.
In Melbourne's competitive market, I see too many buyers either completely overlook these reports or dismiss the risks because they're caught up in the emotion of securing a property. Don't be one of them.
If you're serious about protecting your investment - and let's face it, if you're spending over a million dollars on a property, you should be - then treat Section 137B reports with the respect they deserve. Ask the hard questions, get independent advice, and understand exactly what risks you're taking on.
Stay ahead of the market - get the real auction results every week!
What The Agents Are Saying
Properties are selling a large amount over agent and vendor expectations over the last few weeks.
Interestingly, with most of the big auction results we have seen, a lot of them have not just sold way over the top of the quoted range, they’re also selling above the reserve price.
Agents have said they’ve been getting reasonable reserves from vendors and then the market is doing the work.
This is why we have had strong auction clearance rates.
Another agent told me this week that a lot of the vendors they’re speaking to are now keen to go online and run an auction.
This comes from having a lot more vendors interested in off market campaigns over the last year.
The Wow Factor!
7 Yarradale Road, Toorak, Vic 3142
English Elegance with a Designer Perspective
Why it WOWs:
Architect-designed & Colab-transformed masterpiece
Set in Paul Bangay gardens with northern sunlight
Marble kitchen, Bertazzoni stove & hidden wine bar
Terrace under wisteria, heated pool & BBQ zone
Luxurious main suite + 2 en-suites + study/4th bed
Minutes from Yarra River, elite schools & Toorak Village
Price guide : $5,000,000 - $5,500,000
In The Media
Warnings $500 billion could be wiped from property values by 2030
Australia could lose half a trillion dollars in property value by 2030 as climate change tightens its grip, warns the new National Climate Risk Assessment. From glitzy harbourside suburbs in Sydney to Melbourne’s coastal edges, no community is safe from rising seas, storm surges, and extreme weather events.
The report paints a sobering picture: 751,000 homes are already in high-risk zones, and by 2090, more than 1.2 million properties could face very high risk. Beyond property, heatwaves, floods, and cyclones threaten workplaces, supply chains, and household budgets pushing insurance premiums up and leaving some homes uninsurable.
Experts warn that rising seas and extreme weather are no longer distant threats. Inner-city residents, affluent beachside communities, and outer urban “watchpoints” all face growing vulnerability. By mid-century, over 1.5 million people in coastal areas will be at risk, surging to 3 million by 2090.
Climate change isn’t just an environmental issue it’s a financial reality, hitting property values, household costs, and lifestyles alike. As Australia prepares new climate targets for 2035, homeowners and investors are being forced to reckon with the price of inaction.
Final Thoughts
Section 137B isn’t always a deal-breaker; sometimes it’s just routine paperwork for minor renos. But when it’s attached to major, unapproved works without permits or insurance, it can be a flashing red warning sign.
In a market already driven by FOMO and underquoting, buyers can’t afford to treat it as fine print. Because the cost of ignoring it? That could be hundreds of thousands – and the loss of your dream home.
If you or someone you know would like assistance to buy this year, book in a call and we can discuss if we can help.
Thanks for reading this far!
We value feedback and if you have any suggestions on what you would like covered in the future please email me at tristan@tomii.com.au
Happy Buying!
Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.
