House Buying Question

[Olaf]

We get Location, Location, Location on BBC America. Was watching it last night and was surprised when the realtor called in a bid to the owner, which was quickly rejected. Here in the states, a bid is a written contract, spelling everything out. The owner can accept it, counter with changes, or decline. Are telephone bids normal?

 

[allie5]

Yes they are normal here in the UK.....as I am just finding out!

The Realtor will sometimes advise if the vendor is open to "offers". We have a higher tax band at £250K so sometimes some "dealing" is required to get round this!! An offer is not a binding contract at all here. It is the first step in what can be a long process...you make an offer, vendor rejects it, realtor suggests another figure, you make another offer....and on it goes!!! It would probably be a lot less confusing, and easier on both parties if an offer was a binding agreement. Here in the UK (not Scotland), both buyer and seller have the right to pull out of the deal right up to exchange of contracts (usually moving day!!) so you can imagine the chaos that this can cause!!

Allie

 

[Olaf]

Moving day? You're kidding, right?

When I bought my first house, I found all that drawing up of offers/contracts a pain in the rear, but I've since seen the wisdom of it.

 

[Miffy2003]

Hi Steph,

No Allie is absolutely serious...you can have a situation where you have booked removal vans, packed everything away..and then either party can pull out with no financial (or other) penalty .

Once you've "exchanged" contracts then you are safe. Exchanges tend to only happen though a few days/ a week before the "completion" date which is when the move then happens.

It is a very poor way of doing in IMHO (especially when you have been at the recieiving end of someone who does this!)

Cheers

Karen

 

[Olaf]

We have to put up "Earnest Money" when we sign a contract over here. For our last house, it was $5000. It goes towards our closing, but if we were to pull out without sufficient grounds, we'd lose it to the owners.

I'd be a nervous wreak with your system. Buying a house is a huge pain in the you know what.

 

[Scotfan]

Just to confuse you, its a totally different system up here in Scotland to that in England. (dont know about Wales or N Ireland)

 

[Daniel&family]

Our system does have some big advantages over the US system though.

From the Vendor's perspective our Estate Agents only charge about 2%, whereas I believe the US Realtors charge about 10%.

From the purchaser's perspective the US system makes the putting an offer on a property expensive, with no guarrentees that the Vendor is 'serious'.

On balance whilst being far from perfect, I prefer the UK system, although there is certainly room for improvement.


Yours

Daniel

 

[Halo]

Hi Olaf, I'm new to the Dis but saw your question and thought I would clarify some of the previous answers.

The UK is a union of countries just as the US is a union of States. England and Wales have one legal system. Scotland has another. Northern Ireland has another (albeit similar to the legal system in England & Wales).
The biggest differences in the legal systems are between the Scottish and the others. It would be like comparing the Louisiana legal system with that of New York State. Whereas the Northern Irish and English systems are like the differences between New York State and Massachussetts.

In the English legal system (which covers Wales too), the procedure for purchasing a property is to make an offer SUBJECT TO CONTRACT. The subject to contract bit allows for legal searches etc. to be completed before a contract is actually concluded. This is important because as a purchaser you want to ensure that the person selling the property to you actually owns it; that the property has not been illegally built; that the property is not about to collapse; that a new freeway is not about to be built next to the property etc.

So...the procedure is:-

1/. You make an offer (this is the telephone bid you saw on the TV programme) but it is not binding until contracts are exchanged.

2/. You exchange contracts. This can be the same day as the bid but is more likely to be 1 month later.

3/. Completion. This is the transfer of ownership date specified in the contract when the purchaser pays the money and the seller gives vacant possession. This could be the same day but is more likely to be one month later.

At point 1/. a purchaser might have to pay a holding deposit to the realtor as a sign of good faith (say $500-$1000) but not strictly necessary.

At point 2/. a purchaser will have to pay a deposit. This is normally 10% of the cost but might be reduced to 5% by mutual agreement. If the purchaser pulls out subsequent to this he will lose his deposit. Additionally, the seller can still sue the purchaser to force the sale to happen. For this reason a purchaser should for example insure the property he is purchasing from exchange of contracts because if the property were to burn down before completion the seller could still force him to pay the agreed price for what is then a smouldering wreck.

At point 3/. the purchaser has to pay the balance outstanding (90% or 95%) to the seller.

Consequently, whilst it could happen in an extreme scenario where someone is looking to exchange contracts and complete on the same day that a purchaser could simply pull out, it is an extremely unlikely event.

What is common is for purchasers to pull out prior to exchange of contracts, even on the day that this is due to happen. This could be because for example they found somewhere else instead, or they found the property needs say a new roof or other substantial repairs which they had not realised.

This is further compounded because it is not usually one transaction but a series of transactions: A buying from B, who is buying from C, who is buying from D, who is buying from E etc.
This is called "a chain". The more properties in the chain the greater the risk of failure. To prevent B from being contractually bound to sell his property to A before C is contractually bound to sell to him etc. the attorneys ("solicitors") acting for all the parties will aim to exchange contracts simultaneously - i.e. all the parties in the chain have to exchange together. This is why it frequently goes awry because a problem anywhere in the chain can hold up the entire chain.

I hope this explains our system to you.