The purchase
The second in our series that takes you through the
various stages of the house buying process, offering you expert
legal advice and handy hints in a way that's easy to understand -
helping you to make the best decisions
The purchase of a property can be a very tense time. Agreeing an
offer on your prospective new home is a massively important step -
but you're only halfway there. Next come surveys, conveyancing, the
possibility of further negotiations and a period of uncertainly
before contracts are exchanged and the purchase becomes legally
binding. While most house sales run smoothly - especially when the
market is down and buyers are few and far between - it's not
uncommon for a deal to collapse. This worst-case scenario can be
frustrating, but it can also cost you a lot of money if you're not
prepared. Below we look at the process, the pitfalls and how to
protect yourself.
The Chain
While it's harder than ever for first time buyers to get a foot on
the property ladder, one thing you don't have to worry about is
having to sell one property in order to buy another. For this
reason, first time buyers will always sit at the bottom of 'the
chain'. The chain, put simply, is the number of people who are
relying on others to sell a property in order to buy one
themselves. You might just be looking to buy a house from one
person, but that person is also trying to buy from someone else and
so on - so all transactions need to succeed for your sale to
happen. Simple!
It's important to try to find out how long your particular chain
is when putting in an offer. While a chain can be unavoidable, the
longer it is the slower the process and the more chance there is of
your deal falling through.
That's because for every household there is a solicitor who
needs to exchange documents on buying and selling a house on the
same day, so your transaction cannot complete unless all others do.
If one of these deals stalls, then the chain breaks. Fortunately,
as a first time buyer, you won't have the stress of selling… that
comes with your second home.
What makes a sale fail and A chain break?
A person may:
- Be unable to secure finances or mortgage
- Have a change of circumstance, like divorce
- Unearth problems during the survey that put the valuation into
question
- Have a change of heart
- Become a victim of gazumping or gazundering
How can it be fixed?
To repair a broken chain, the property that lost its sale needs to
be resold. However, the reality is that broken chains are hard to
mend, especially in the current climate.
What are the costs?
A broken chain can cost you money and a mortgage, as well as your
time.
Costs - You may lose the fees paid for your mortgage,
your solicitors and your survey
Mortgage - Some deals are only available for a limited
time and may even expire. So it is important to check the facts
with the lender when you get an offer
Gazumping and gazundering
While the terms gazumping or gazundering sound like fun, they are
anything but and can leave buyers or sellers in a very tricky
situation.
Gazumping
Typically, gazumping is when a seller accepts a verbal offer from
one buyer but then agrees to a higher offer from another. It can,
however, also refer to a seller raising the price of a property at
a late stage in contract negotiations, having already agreed to a
lower offer.
Gazundering
Gazundering is the opposite of gazumping, and is the term used
when a buyer demands a reduction in the price of a property at the
very last minute.
While both of these practices are uncommon when the housing market
is weak, they are always a possibility because a buyer's offer is
not legally binding even after acceptance by the seller. An
agreement is only 'subject to contract' until contracts are signed
and exchanged.
How can I avoid being gazumped?
Being gazumped can leave you feeling hard done by, but more
worryingly it will leave a large hole in your pocket. Having to
shell out for a second set of solicitor's fees and surveys will
cost hundreds of pounds, but there are some legal precautions you
can take to protect yourself against gazumping.
Exclusivity agreement - With the help of a solicitor,
this agreement secures your right to a property leading up to the
exchange of contracts for a certain period of time.
Pre-contract deposit agreement - This requires both
parties to pay 1.5-2% of the house price to a stakeholder and sign
an agreement. If one side pulls out, the other party receives the
deposit as compensation, subject to conditions being satisfied.
Estate agent policy - You'll find that some seller's
agents have policies that safeguard against their customer
gazumping - check this with your solicitor.
Homebuyer insurance - Some lenders offer cheap
protection against gazumping. These stand-alone policies usually
cover you up to a few hundred pounds, last for three months after
your offer is accepted and will cost around £50. This is something
to shop around for online to find the best possible option.
If none of the above is possible, then insist that the property
is taken off the market when your offer is accepted. Other than
that, it is a good idea to regularly update the seller's agent on
your mortgage and survey status in order to reassure the
seller.
Things to look out for
While contract races and overage clauses are uncommon and only
apply to certain properties and situations, they're still worth
being aware of.
Contract races
When the market is healthy and competition is high, occasionally a
vendor may offer a property to two or more potential buyers on the
basis that the first person to send a deposit and exchange
contracts takes the property. The seller's solicitor is obliged to
inform the buyers that they are in a race - the winner takes all,
while the loser blows their costs.
Overage clause
An overage clause only comes into play when there is retained
interest in a property. This might apply to a house that is due to
increase in price due to a proposed planning permission and/or a
scheduled build/sale. When planning permission is granted or the
build/sale takes place, the seller becomes entitled to a pre-agreed
sum.
Having a reputable firm of solicitors working on your behalf is
very important during the purchase, and most of the hurdles you may
face can easily be overcome with sound legal advice. Make sure you
enter into clear and regular communication with your solicitor
throughout the process as keeping up to date with progress can be
reassuring, especially for a first time buyer who will probably
have very little or no experience of the buying process.
Richard Chan is the Managing Director of Arc Property Solicitors
and a practising Solicitor. Here he advises first time buyers on
what to be aware of when purchasing a home. www.arcpropertysolicitors.com/ftb.php