As London slowly wakes up from a bad financial hangover, the property market seems to be well on its way to recovery. But with house prices rising, the property industry has reported a rise in gazumping, first fashionable in the property boom of the 80s. Together with frequent warnings of an imminent property bubble, the residential property market in London can seem pretty frenetic and intimidating. Here are our top tips for residential buyers, who have found the property they want, had their offer accepted, and want to ensure they proceed to exchange.
In the UK, when an agreement is made between a buyer and seller to buy a property, neither party are officially committed until the formal contracts of sale are exchanged (known colloquially as ‘exchange’), and either party can withdraw from the proposed transaction with no penalty prior to exchange. Exchange will often not take place for several weeks until after the agreement is made, and during that time the buyer’s solicitor will be busy carrying out searches on the property, reviewing the title to the property, arranging any necessary mortgage finance, and reporting to their client. During this gap, another buyer can easily come along with a higher offer and ‘gazump’ the original buyer.
So what can we do to protect our clients against the threat of gazumping? Buyers can request what is known as an exclusivity agreement, which grants them a certain period, e.g. two – three weeks, to carry out their conveyancing, without the threat of being beaten to it. Generally an exclusivity agreement does not oblige the parties to exchange contracts, but instead prevents the seller dealing with any other party during the relevant period. A buyer should also ask for the property to be taken off the agent’s website at this point.
If the seller requires a reservation deposit as a condition of the exclusivity agreement, the reservation deposit should form part of the deposit when exchange occurs. We would always ask on behalf of the buyer for an obligation on the seller to exchange contracts during the exclusivity period, at the agreed price, if the buyer is ready to do so. It is also important for the buyer to have the right to the return of the deposit if it turns out there is something wrong with the property, for example if the survey results are unsatisfactory, there is a title defect, or the seller refuses to exchange in accordance with the agreement.
If you are a cash buyer, and there is a lot of competition for the property you want to buy, you could offer to do an attended exchange. This is where the buyer and their solicitor attend the seller’s solicitor’s office and exchange contracts on the same day. Effectively what happens is that the parties stay in one room until exchange takes place.
The buyer and their solicitor will look through all the title documents, and negotiate the terms of the contract then and there. This can be a great way to get a deal done efficiently and in our experience, clients always enjoy it. There is, of course, inevitable risk involved in an attended exchange. In the short time scale, your solicitor will not be able to obtain all the usual documents they might require before a normal exchange of contracts. You will be forced to take a view on at least some issues relating to the property, but your solicitor will be able to advise you on what the implications of those various risks may be.
We would always recommend our clients obtain a survey and valuation regardless of the economic climate. Recently we acted for a gentleman who was buying a property for £2,050,000. Our client was desperate for the property and didn’t want to ‘waste time’ carrying out a survey or valuation. However, on our advice the client did get a valuation and it came in at less than £2m. This was incredibly helpful for the client in negotiating the price down to £2m, which was a saving of £50,000. This also meant that the SDLT rate was reduced from 7% to 5% meaning an additional saving of £43,500 for our client.