When an offer is accepted

 

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‘Sale agreed’. It’s what buyers and sellers alike are hoping to achieve… an offer accepted, a deal done. But in many respects this is, to borrow a phrase, ‘the end of the beginning’. The time it takes between accepting a deal and the ownership of a property legally changing will take weeks, and may take months. Until contracts are exchanged, your agreement to the sale is not binding, and the weeks after the sale is agreed can be the most frustrating and worrying part of the whole process. If you know what to expect, it is easier to prepare for it.

Sale Agreed – the next step

Once a sale is agreed you will immediately be asked which solicitor you are using. This is because confirming the sale is a legal process (called conveyancing), and from now on the matter is in the hands of the lawyers. The estate agent will send out a document called the ‘Memorandum of Sale’, which has the buyers and sellers details, their agreed price, a list of what is included in the sale, and contact details for the solicitors on both sides. Nothing else will happed towards the sale until this document is sent out, so its better to be ready with a solicitor in place before you reach this stage.

What the solicitors do

English law operates under the principle called ‘Caveat emptor’, which means ‘buyer beware’. In other words, it is the buyers’ responsibility to make sure everything is as they expect it to be. This is what the buyers’ solicitor has to do, by raising a series of enquiries and checking the information on record about the property being purchased.

The list of documents and searches that need to be done varies from area to area, but will invariably include many of the following:

  • checking with the water authority that the mains water and sewerage systems are provided, and that the owner of the property does not have to pay for their upkeep
  • checking with the Local Authority to make sure there are no approved planning consents in the area which would affect the value or rights of the home-owner
  • checking with the Land Registry to make sure that the title deeds to the land are in order, and that the seller is the rightful and legal owner of the land or home they are selling
  • checking with the Highways authority to make sure the road is an ‘adopted highway’ – in other words that the government, and not the homeowner, is responsible for keeping the road in good order
  • checking for local geographical, geological or environmental information – this can include reports on the likelihood of subsidence in former mining areas; flooding in river basins; on radon gas emissions in the area, or on the safety of old land-fill or contaminated sites.
  • Checking for ‘covenants’ or ‘easements’ – that is, restrictions on the use of a property written into its title deeds, or rights of access granted over the land, or rights of access over other people’s land to the property itself.

Some of this information is covered in the Home Information Pack. Some can be applied for directly from the relevant authorities. Some has to be requested from the sellers’ solicitor. All of it will take time to collect and confirm, and may cost money for the documents themselves. These extra costs are called ‘disbursements’, and are usually in addition to the legal fees themselves. A conscientious solicitor will make sure that every legal detail is confirmed and cleared before going ahead with a purchase. The seller’s solicitor should provide any information as quickly as possible.

Mortgages and Surveys

Although these two things are separate, the former always demands the latter, so it is easier place them together. If you need a mortgage, you should already have a mortgage approved in principle, but you will need to provide the exact details of the house you are buying and the price you are paying to turn that principled agreement into a firm offer. The mortgage lender will insist on conducting a survey on the home, to make sure that it is really worth the amount agreed. The property is their security on the loan – of you can no longer pay the mortgage, the lender has to know they can get their money back from the sale of the house. You will have to pay for this survey – usually in the region of £400 – but the work is being conducted on behalf of the lender, so you have no redress if the surveyor gets it wrong.

A mortgage survey is the least rigorous kind of survey. The surveyor will be a qualified professional, and will spend a couple of hours checking the interior and exterior of the house, but they will not do a detailed structural analysis. If everything is fine, the survey will give the go-ahead to lend the money. If, however, there are things of concern to the surveyor, it is quite possible for the survey to insist on more detailed, expert reports on issues such as the roofing, the potential presence of asbestos, or the state of any damp or timber problems in evidence in the property. Again, further reports may well involve more expense to the buyer.

In the worst case scenario, a mortgage survey might conclude that the home is not worth the agreed price, or that work must be done to the property before the full amount of the  mortgage is paid. If this happens, it may be necessary to renegotiate the price, or to come to an agreement with the seller as to what work is done when, and who pays for it.

Many buyers, with or without a mortgage, want greater assurance of the condition of the home they wish to buy. There are two further survey options available. A Homebuyers’ survey is commissioned and paid for by the buyer, and the surveyor is legally answerable to the buyer if they miss anything fundamental. This survey is more in-depth and thorough than a mortgage valuation survey. Sometimes, a mortgage company will accept a Homebuyers’ survey, but always address this matter directly or through your IFA before it is commissioned.

Be aware, also, that surveyors are cautious about their legal obligations. It is not uncommon to find phrases in a survey which convey little information but which protect the surveyor against the charge of overlooking something that is discovered later. Many surveys contain phrases like ‘the condition of the roof suggests that it may need replacing within the lifetime of the building’. This doesn’t actually say if the roof will last for five years or five hundred years, but it does protect the surveyor against legal action if the slates start to fall once the new owner moves in.

The most expensive but most rigorous form of survey is a full structural survey. A structural engineer will examine in detail all aspects of the construction of the property. While the cost may be double that of a mortgage survey, this kind of report should bring reassurance, or identify problems if they exist. Given the cost of any property, buyers should seriously consider getting a full, detailed report on their purchase.

A survey takes a few hours at most, but booking the surveyor might mean a delay of a week or two, and waiting for the surveyors report is a principle cause of delay for mortgage offers. It is important, then, to address these issues at the first opportunity.

The role of estate agents

In the strict, legal sense, the Estate Agent has no role or responsibility once the sale has been agreed and the Memorandum of Sale issued. In practice, though, this time is when a good agency really earns their keep. Solicitors are notorious for working to their own time. Lenders have hundreds of applications for loans. IFA’s have a limit to what they can do for each client. Buyers have their own sales, and often their own sales agents. Property chains can involve dozens of these professionals. Usually, it is your agent who will chase and harry all of these people into line to look after your sale or purchase. Remember that the other professionals – from lawyers to brokers to lenders to surveyors – are not working for the agent. There is only so much an estate agent can do when you, or another person in the chain, is the actual client of the solicitor. Nonetheless, a good agent will keep you, and everyone else, informed of exactly what is going on, which documents are needed by whom, and why there is a delay should one occur.

Incidentally, cheap estate agents usually keep their fees low by cutting back on this kind of work, or even cutting it out altogether. While a handful of sales progress with no complications, with no gaps in communication between the professionals, and with no hiccups or hold-ups, in practice this is rare indeed. When problems do occur, a good agent will anticipate and solve them without you even knowing, but a bucket-shop agency will most likely lose the sale. Cutting costs can really become expensive when this happens, as any fees you have paid for your own surveys etc. could be lost, and you will have to go through the stresses of finding a buyer all over again.

Ready to exchange

The exchange of contracts is the point at which an agreed sale becomes a legal commitment. The solicitors for both sides will put together the contract of sale which specifies the amount to be paid, and all of the details regarding the land, property and goods included in the sale. Buyer and seller leave a signed copy of the contract with their own solicitor. When, and only when, both sides are happy that everything is agreed, checked and in place, then the signed contracts are exchanged. From this point on, there is no backing out.

The contracts that are exchanged will agree a completion date – that is, the day when the money has to be handed over and the property legally changes hands. This can sometimes happen at the same time, or it can be agreed for several months in the future. On occasion, a contract can specify a deadline but allow for an earlier completion in advance by mutual agreement. Exchange of contracts confirms the sale will go ahead; completion is when it actually happens.

Completion

Until completion, the seller still owns the property. For the buyer, and the buyer’s solicitor, it is vital to have the money ready to transfer. Most solicitors won’t exchange contracts until this is confirmed. It can take several days for the mortgage company to release the funds, and it will cost money to send money immediately, so make sure there is enough time for this to happen. Failing to complete on a purchase on the agreed date can carry heavy financial penalties. Fortunately, it doesn’t happen very often.

Many people choose to move house on a Friday, which makes this an extremely busy time for lenders and lawyers. If at all possible, avoid completion dates on Fridays for this reason. The keys to your new home won’t be handed over until completion happens, and it might run late into the afternoon if you pick the busiest day of the week. This can cause problems for removal firms, and might end up with you working late into the night to get boxes and furniture out of one place and into the next. Worse, if anything goes wrong or there are last minute delays, the offices will close until the Monday, and you may just find yourself with nowhere to go. Although this worrying prospect is a rarity, it’s best avoiding the possibility by picking any other day on which to complete your sale or purchase.

When the money is received from the buyer by the seller’s solicitor, the sale has completed. The solicitor should tell the estate agent, buyer and seller. The estate agent can then release the keys to the new owner. Congratulations! You’ve just moved house!

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Making and receiving offers

 

maison-et-objet-paris-2015-market-for-the-home-2.0.jpgThere are two ways to look at a prospective house sale. The first is antagonistic. The buyer wants to pay the lowest possible price. The seller needs to get the most money they can from their sale. These two camps are in opposition, and if both bring this attitude to the negotiation, it can be very hard to satisfy both parties. The other perspective is collaborative. The buyer wants to buy, the seller wants to sell, and both sides are looking to achieve the same objective. Adopting this attitude will make things much easier to resolve. Both perspectives are, in some sense, true, but the first way can lead to intractable problems and stubborn negotiating that gets in the way of agreeing a sale. A constructive approach offers a ‘win-win’ solution, where everyone is happy with the deal.

The buyer’s perspective

Before making an offer, know exactly what you can afford. If you need a mortgage, speak to an Independent Financial Advisor (IFA) and get a Mortgage Approval in Principle (AIP). This will let you know how much you can borrow, and how much you can expect pay back each month. If you are a cash buyer, or are getting your money from other sources, you need to do the same calculations to truly know your financial position.

Remember – buying a house is only a means to an end. For most people, the aim is to build a new life in a new home. If you find the right house, focus more on the outcome and less on the negotiation itself. Of course you want the best deal, for less money. It’s natural to offer low, and to do your utmost not to pay more than you have to. But it’s hard to weigh the value of finding the right place. If you buy with a mortgage, you only need a little extra cash to make a much better offer. For example, if you are borrowing 80% of the purchase price, £5000 more will only cost £1000 in cash, plus a little extra each month. Some buyers get so caught up in ‘doing the deal’ that they lose sight of how little it will actually cost to improve an offer. Concentrate on what you are trying to achieve in the long run, rather than worrying about ‘winning’ the negotiation. If you find the home you want at an affordable price, you are already a winner.

For investment buyers, it’s almost the exact opposite. You should only be looking at the numbers. An investment property is a business, and you should try to dismiss the emotional appeal of a particular house. There, it comes down to the maths of whether you will attract tenants, and whether the rent will cover the cost. Even so, being direct and honest about your position, rather than trying to haggle, will give you a much better chance of achieving your goals. Investment buyers, though, should be willing to walk away if the numbers don’t work.

The Seller’s Perspective

Constantly ask yourself ‘what is it you are trying to achieve?’  If you are buying a new home with the proceeds from the sale, you should have a good idea of how much money you need to make. If you receive an offer which is too low, perhaps you can make a lower offer on the home you need. If there’s a chain, it’s easier to ask five people to take £2,000 less than for you to accept £10,000 below your price.  A good estate agent can help a lot in these cases. If you want a quick sale for personal or practical reasons, it can be better to accept a reliable buyer at a lower price, than to hold on in hope of something higher that may never come. Knowing your own priorities will help guide you towards the best decision.

Naturally you want the best price. The Estate Agent is working for you, not for the buyer, and although agents want a sale, their advice on the state of the market and the quality of the offer should be taken very seriously. If you are holding out for more, it’s useful to have something in reserve. Including furnishings in the price can give the buyer the justification for a higher offer. Buyers want a deal, too, so have something extra to give in order to get what you need.

It can be good to be flexible or creative. A buyer may be able to afford a larger mortgage but may not have ready cash available. If your home is just over a stamp duty threshold, perhaps you can offer to pay the duty, so that the buyer can offer more for your home but has less cash to pay up-front. Maybe you can offer to pay the removal costs out of the sale price. In both cases, the buyer can use the money saved to add to a deposit, allowing them to borrow more for a higher purchase price. If it costs you £5,000 in stamp duty to get £10,000 more for your home, you have clearly done well out of the deal!

Unproceedable offers

This is when a potential buyer makes an offer, but can’t go ahead with a sale until they have a buyer. Sometimes, the obstacle can be a link much further up the chain. They are hard to evaluate: on one hand, it’s great to have a potential buyer lined up, but on the other you might be waiting for months before everything comes together. If you receive an unproceedable offer, you may be willing to accept the price, but it is usually a good idea to leave your home on the market. The estate agent of the person who has made the offer has almost certainly told them it will be easy to find a buyer. It may be true, but be sceptical to guard your own best interests, and ask your own estate agent for their opinion. At very least, suspend marketing only to a deadline to give your prospective buyer some time to complete the chain.

If you want to buy a home but haven’t yet found a buyer, it’s still worth making an offer. First, you will have some idea of whether your chosen home is affordable. Second, you virtually guarantee that the estate agent will keep you informed of any other offers or developments. Most important, you have a real idea of how much you need to get for your own home. If your unproceedable offer is accepted, you may be able to take less for your own home to complete the chain. But be quick – even if you have your heart set on a home, you can’t expect the seller to wait forever.

A last word on negotiation

For both sides, remember that negotiation is only the means by which you both arrive at an agreement that suits everyone. The more honest and collaborative the process, the less likely it is to break down later on. You both win, or you both lose – very rarely is this not true. Be honest with yourself, and know your own mind and financial position. Be prepared to compromise or to walk away. It’s easy to get caught up in the detail, but is it really sensible for a deal worth hundreds of thousands of pounds to fall apart over a couple of hundred quid? From the minute an offer is made, both buyer and seller want the same result – ‘sale agreed’!