6. Buying a Property: An Overview Flashcards
What is a typical property buying process?
Establish a budget // Find a property // make an offer // formal mortgage application // exchange of contracts // completion
What are the basic principles of a contract?
Agreement: An agreement between two or more people to enter into a legal arrangement
Offer and acceptance: One party will make an offer and the other will accept // Both offer and acceptance legal obligations on both parties
Consideration: A consideration must be given - in property terms the buyer usually gives a consideration (money) and the vendor gives a consideration (property)
Capacity: all parties must have the capacity to enter a contract such as being of sound mind, aged 18 or over and legally able to sell or buy the property - acting as either principal or agent
Intention: it must be clear that both parties intended to enter into a legally binding contract
Bound by terms: once the contract has been agreed and put in place, both parties are bound by its terms // if either party fails to comply with the contract terms they could be sued for breach of contract by the other party and ordered to comply, or to pay damages and/ or compensation to the ‘injured’ party
What does caveat emptor mean?
It means ‘let the buyer beware’.
Generally there is no duty of disclosure between parties to a contract; most contracts are based on the principle of caveat emptor. This means that neither party is required to disclose information to the other unless asked to do so, in which case they must answer any questions honestly and to the best of their knowledge but do not have to volunteer information not requested
Who are the agent and principle?
The agent is the estate agent who acts legally on behalf of the principal who is the vendor who grants the agent certain powers
What is the general principle of agency?
The principle is liable for the agents actions unless the agent acted outside of their authority. In the latter case, the principal may be able to seek redress from the agent
What are two situations in which the agent may act outside their actual authority without necessarily making themselves liable for redress?
Apparent authority: where a statement or action by the principle appears to give the agent wider authority.
Ratification: where the agent acts outside the actual authority, but the principal agrees after the event that the action was acceptable
What does a buyer’s budget determine?
The price range of property they can realistically afford. // Whether they can fund the deposit required. // Whether they can meet other costs involved such as valuations, surveys, legal fees and stamp duty
What is the estate agents role?
The estate agent is an agent of the vendor not the buyer, although they may choose to advise both parties in areas where a conflict doesn’t exist.
It’s the estate agents job to market the property and secure a sale at the best price possible.
When someone decides to sell their property, the process begins with a market valuation by the estate agent, who will estimate a realistic sale price and advise on any action the vendor could take to increase the potential price or improve the prospect of a sale
 at this stage the vendor will agree the price of which the property will be marketed and the agent will prepare marketing material for distribution to potential buyers
Making an offer to buy
An offer is usually made subject to contract, which means that neither vendor no prospective buyer is legally committed until contracts have been exchanged. Either party may withdraw from the sale at any point of the exchange of contracts, with no penalty and no compensation to the other party
What is an offer of advance?
An offer of advance, or offer letter, is not the final legal contract. The offer letter is an invitation to the applicant to enter into an agreement, rather than the agreement itself. The offer letter will however contain many of the details it will also eventually be reflected in the mortgage contract
The lenders offer is binding on the lender and can only be withdrawn in certain circumstances which include?
Where the buyer knowingly provided false, inaccurate or incomplete information // material changes to the buyers circumstances after the binding offer was made that would affect the ability to pay the mortgage // A material change affecting the condition of the value of the property after the offer was made, or issues affecting the title to the property, such as defective title. Investigation of title is usually carried out after the mortgage offer is made and so problems would not be identified until the investigation was completed
What are some of the things for mortgage offer must include?
An illustration, together with a tariff of charges, and explain that there is a seven day reflection period during which the applicant can change their mind. The applicant can also waive the right to the reflection period.
What is the typical process of offer and contract exchange?
An offer is made a subject to contract where neither party is legally committed until contracts are exchanged
Contracts are prepared signed and exchanged and both parties are legally bound to complete the transaction. Either can be subject to action for breach of contract if they fail to do so
Buyer pays the deposit. The buyer would be likely to lose the deposit if they do not complete the transaction and may also face claims for breach of contract
Why should a buyer arrange buildings insurance upon exchange of contracts?
Once contracts have been exchanged, the buyer is technically responsible for any damage or loss to the building even though they don’t own it yet. A sensible vendor will make sure they also maintain their insurance just in case the buyer fails to arrange cover
When is a completion date agreed?
When contracts are exchanged the solicitors will agree a completion date for the sale which is when the balance of the sale price is paid and keys are given to the buyer. It is typically around 28 days after exchange
