The most common problems experienced by buyers include the following:
- Buying in the wrong area (rent first!);
- Paying too much for a property;
- Losing a property due to being in a chain;
- Gazumping and gazundering (see below);
- Buying a property that needs renovation and underestimating the costs;
- Not being able to obtain planning permission for alterations;
- Not having a survey done on an old property;
- Not taking proper legal advice or including additional clauses in a contract;
- Taking on too large a mortgage.
Buying in the wrong area is usually the result of not doing your homework and researching the market properly. This may mean buying in an area that’s unsuitable for your family (poor schools, lack of public transport, etc.), buying in a run-down area where values are falling or simply buying in the wrong street. If feasible, it’s advisable to rent a property for a period (in the area where you’re planning to buy) before buying in an unfamiliar area.
Paying Too Much
Again, this is the result of lack of research and being in too much of a hurry. If you’re unsure what a property is worth, get it valued by a professional valuer.
The dreaded chain is the curse of the UK housing market, as buyers and sellers in England and Wales are free to pull out of a deal at any time before the exchange of contracts without penalty (in Scotland once a bid has been accepted it’s legally binding). If you’re a first-time buyer there will be nobody ‘above’ you, but the vendor may be part of a chain below you.
You can try to avoid chains by doing the following:
- Pay in cash (i.e. don’t take out a mortgage)
- Sell your home and rent before buying another
- Buy a new home from a developer
- Buy at auction
- Buy a property with vacant possession (where the owner has already moved out).
Most house sales are part of a chain of sellers and buyers – around seven or eight isn’t uncommon – and only one link needs to fail (which is commonplace) to jeopardise a whole series of sales.
If someone drops out of a chain, it’s likely to delay the sale of your property or the purchase of a new one. If your purchase looks as if it’s in jeopardy, you could just hang on and hope that the vendor doesn’t find another buyer who can complete sooner. However, if this happens you should be prepared to lose the new home and start the process all over again. You may be able to obtain a bridging loan which will allow you to go through with the purchase, although this is risky and expensive. If you’ve sold your home, but lost the home you planned to buy due to a break in the chain, you may wish to consider renting accommodation until you find a new home rather than lose your buyer.
In a sellers’ market, gazumping – where a seller agrees to an offer from one prospective buyer and then sells to another for a higher amount – is rampant and isn’t illegal. When buying a resale home (you cannot be gazumped when buying a new home after you’ve paid a deposit) in England, Wales or Northern Ireland, prospective buyers make an offer which is subject to survey and contract. (There’s virtually no gazumping in Scotland, as neither side can pull out of a deal without penalty once an offer has been made and accepted.) Either party can amend or withdraw from a sale at any time before the exchange of contracts – when a sale is legally binding – which is usually up to 12 weeks after the acceptance of an offer. In a sellers’ market your chances of being gazumped are very high and it has been blamed for wrecking as many as one in seven deals.
Tip: Gazumping is so prevalent that you can take out insurance against being gazumped after having paid for a survey and legal fees!
Sellers and estate agents may not take a property off the market when an offer has been accepted because the prospective buyer may change his mind or take too long to complete the deal. Despite this agents should agree not to show a property to other prospective buyers and you should make this a condition of an offer being accepted.
However, agents are legally obliged to tell vendors about any other offers on a property, even when an offer has been accepted and it has been taken off the market. For example, if someone who previously viewed a property makes an offer, the agent must tell the vendor. Don’t take it personally if the vendor receives a better offer after accepting yours and asks you to match or better it – if you really want the property it may be better to swallow your pride (some 30 per cent of offers that are accepted fail to reach completion for one reason or another).
You can reduce the chances of being gazumped by exchanging contracts as soon as possible and encouraging a vendor to sign a lock-out agreement, where you have the exclusive right to buy for a number of weeks. Because of the fears of gazumping, some buyers agree to buy two or more homes, which inevitably leads to them pulling out at least one prospective purchase at the last minute.
Sellers also frequently cancel sales before contracts are exchanged and may take a property off the market altogether if they think they can get a better price later. To try to prevent gazumping, some agents insist that vendors sign a binding agreement that any further offers they receive after acceptance of an offer must be refused.
To avoid gazumping, the American system which allows contracts to be exchanged the same day a sale is agreed has been introduced by some solicitors. Most people agree that the present system is immoral, with both buyers and sellers reneging on deals with impunity, often just days before they’re due to exchange contracts (and after a prospective buyer has paid hundreds and possibly thousands of pounds in legal and survey fees).
From 2007, sellers will need to provide a ‘home information pack’ at a cost of £400 to £800 before putting their home on the market. This will include commissioning a survey, collecting the title deeds, conducting local council searches and providing details of warranties, planning permission, etc. It’s hoped that this will reduce the risk of gazumping, although without a financial penalty (such as the forfeiture of a deposit as in other countries) it’s very unlikely that gazumping will be eradicated, particularly when some buyers are willing to pay much more than the asking price in a hot market and may even pay in cash!
Gazundering is the term used when a prospective buyer threatens to pull out at the last minute unless the seller reduces the price (it can only happen in Britain where buyers don’t risk losing a deposit). Often the vendor has already arranged to buy a new home and is forced to go through with the deal (which is what the gazunderer is planning on). Although rare, gazundering is more common in a flat housing market where prices are static or falling and buyers are thin on the ground. To get their own back on gazunderers, some vendors strip houses bare, removing carpets and anything that wasn’t specifically included in a sale – one vendor even went so far as to dig up the tennis court!
If you’re planning to buy a property that requires renovation or you plan to carry out major structural changes, ensure that you have an accurate estimate of the costs.
If you plan to make structural changes to a property, particularly a large extension, you must ensure that you will be able to obtain planning permission.
A survey is often vital, particularly if you’re buying an old property or a property with a large plot of land.
Your solicitor or conveyancer will carry out the necessary searches regarding such matters as ownership, debts, rights of way, use of land before building (landfill, mines or industrial sites) and planned developments (motorways or railway lines, radio or mobile phone masts, industrial sites, etc.).
Enquiries must be made to ensure that the vendor has a registered title and that there are no debts against a property. Your solicitor must make sure that the person selling a property is the sole owner or has the right to sell. It isn’t unknown for a husband or wife to sell a home without telling his or her spouse, forge the spouse’s signature and disappear with the proceeds, in which case you can end up owning only half of a house. It’s also important to check that a property has the relevant building licences, conforms to local planning conditions and that any changes (alterations, additions or renovations) have been approved by the local council.
Contracts & Clauses
If a sale or purchase is dependent on something beyond your control, such as the sale of a property, or you’re buying additional items (such as carpets, curtains or furniture) with a property, they must be included in the contract.
It’s important not to take on too large a mortgage because if interest rates rise and house prices fall you may find yourself in negative equity (where your loan is more than a property is worth – see page 153). Even worse, you could be unable to pay your mortgage and have your home repossessed by your lender (as happened to tens of thousands of families in the ‘90s).
This article is an extract from Buying, selling & letting property (UK). Click here to get a copy now.