Topic 6 - Buying a property

Question 1

What are the typical stages of buying a property

Answer 1

1) Establish a budget
2) Find the property
3) Make an offer
4) Formal Mortgage Application
5) Exchange of Contracts
6) Completion

(its not always this simple)

Question 2

What are the two main ways to sell a property?

Answer 2

Private treaty (private bargain in Scotland)

Auction

Question 3

What are the basic principles of a contract?

Answer 3

Agreement

Offer and Acceptance

Consideration (A consideration must be given – in property terms the buyer usually gives a consideration (money) and the vendor gives a consideration (property))

Capacity (over 18, of sound mind and legally able to buy/sell the property acting as either principle or agent

Intention (both parties wanted to enter into the contract)

Bound by terms (once contract is agreed both parties are bound by its terms)

Question 4

Who is the principle

Who is the agent

Answer 4

Principle = The party who authorised another entity (the agent) to act on behalf of them

Agent = The entity who acts on behalf of the principle. An estate agent is a clear example

Question 5

Most contracts are based on the principle of ‘caveat emptor’

Answer 5

‘let the buyer beware’

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

Before, insurance was based on ‘utmost good faith’ where the buyer had to disclose all ‘relevant facts’ even when not clearly asked which led to many insurance companies declining claims

Question 6

A property buyer’s solicitor will
ask the vendor to complete a Law Society property information form (TA6)

Explain why and what this form is

Answer 6

A form that contains a number of questions about the property, the surroundings, disputes,
flooding, parking and other important issues.

The vendor must answer the questions honestly and completely as far as possible

The vendor could face legal action if the buyer
later has any problems relating to issues that were not disclosed honestly or accurately

Question 7

Who out of the following is the agent and who is the principle

Estate agent
The vendor

Answer 7

Agent (The estate agent)
Acts legally on
behalf of Principal
(The vendor)
Who grants the agent
certain powers

Question 8

What is apparent authority, actual authority and ratification?

Answer 8

An agent should only act within the powers given to them by the principal (actual authority)

However sometimes an agent can act outside of their authority without being liable for any issues

For example, an agent can have apparent authority (Where a statement or action by the principal appears to give the agent wider authority)

Another example is an agent could have ratification (Where the agent acts outside their actual authority, but the principal agrees after the event that their action was acceptable

If an agent acts outside of their actual authority and the above exception dont apply, the agent may be made liable for redress

Question 9

When selling a property does the estate agent accept offers for the vendor, since they are acting as agent for the vender?

Remember, in most agency agreements the agent is given authority to act on the principal’s behalf

Answer 9

The terms of an estate agent’s agency will usually state that they forward offers on the property to the vendor, who makes the decision whether to accept.

This is in contrast to many other types of agency, where the agent is given authority to act on the principal’s behalf

Question 10

Typically speaking, the first stage of buying a property is to establish a budget

What should a buyer budget aim to achieve?

Answer 10

To establish:

The price range they can afford

Whether they can fund the deposit required

Whether they meet other cost involved such as legal fees or stamp duty

NOTE: in this stage a borrow will also likely speak with a lender/intermediary to see what they could potentially borrow given their circumstances. Its not a guarantee and its not binding to the lender but should be done to not waste the vendors and their time (like a mortgage promise in TSB)

Question 11

What is an estate agents role?

Answer 11

The estate agent is an agent of the vendor not the buyer

Their role is to market the property and find the vendor a great deal

Question 12

What is the ‘asking price’ when selling a property?

Answer 12

The price at which the property will be marketed

Question 13

What is an estate agent typically paid per sale of property?

Answer 13

Estate agents are usually paid on a commission basis, expressed as a
percentage of the sale price (typically 1–3.5%),

NOTE: internet agents may offer significantly lower fees than conventual estate agents

Question 14

What are the different ways an estate agent can operate?

Answer 14

Sole selling rights (rarer) - The agent has exclusive rights to sell the property and will receive the fee
even if the vendor or a
third party finds a buyer

Sole agency - The agent has exclusive
rights to sell the property, although they will not be entitled to a fee if the vendor finds a buyer

Joint sole agency - Two agents agree to market
the property exclusively
and split the commission when a sale is made (more likely to sell so higher commission than a sole agency)

Multiple agency - A number of agents market the property and the agent who sells the property will receive the fee

Question 15

Explain what an Energy Performance Certificate is

How long is it valid for?
What happens if a property does not have one?

What building is it not required for?

Tell me about its rating system and what happens if a property preforms poorly on this rating system?

Answer 15

Details a building’s
energy efficiency. It is required for new build or when a property is marketed for sale or rent

required for building that have a roof and walls, and use
energy to heat, cool or ventilate the building. If a building consists of separate units, each unit requires its own EPC

It is valid for ten years

Failure to commission an EPC before
marketing a property is an offence carrying a fixed penalty

An EPC is not required for certain buildings, such as places of
worship, temporary buildings intended to be used for less than
two years

The certificate rates the property from A (efficient) to G (very
inefficient)- The same as electrical appliances It is illegal to arrange new rentals or renew an existing rental agreement for a residential property with an EPC rating of F or G, unless a landlord has an exemption

Question 16

Do you have to have an estate agent as a vendor?

Answer 16

No, but they do help greatly in terms of marketing the house, the administrative work with solicitors and so on

Question 17

If a vendor accept an offer, at what point is it binding?

If a buyer has made an offer and the vendor accepts, and the buyer or vendor pulls out, and there has been no exchange in contract what happens

Likewise, what happens if there has been an exchange in contracts

Answer 17

No offer is binding until exchange of contracts

An offer is usually made subject to contract, which means that neither vendor nor prospective buyer is legally committed until contracts have been
exchanged.

Either party may withdraw from the sale at any point up to exchange of contracts, with no penalty and no compensation to the other party. If an exchange of contracts has taken place, they will likely pay a penalty or compensation

Question 18

What is gazdumping?

Answer 18

Where the vendor accepts an offer and then later withdraws because they have been given a better offer

It is completely legal ( although a bit dickish ) if no exchange of contracts has taken place

Question 19

After a property buyers offer has been accepted by the vendor, what is the next step?

Answer 19

Apply for mortgage with a lender

If they are accepted ( ie the lender believes they can repay and the property is good) the lender will issue an ‘offer of advance’

If this stage goes through and the lender has agreed to give money, the vendor and buyer must exchange contracts

Question 20

What is an ‘offer of advance’?

What is it otherwise known as?

Is the offer of advance binding? Can it be withdraw and if so, under what circumstances?

Answer 20

An offer in advance is a formal letter given to the borrower before the final mortgage contract is arranged containing the T&Cs for the lender to be happy to enter into a mortgage contract

It is otherwise known as an ‘offer letter’

The offer letter is binding on the lender,
but can be withdrawn in the follwoing circumstances:

A material change in the condition or value of the property,

A material change in the borrowers circumstances meaning they can’t afford the borrowing

The borrower provides false or inaccurate info.

Question 21

Can lenders make provisional offers (ie an offer that depends on certain conditions being met) before entering into a mortgage contract considering they are not binding to the lender?

Answer 21

Whilst it is true lenders are required to make a binding offer (binding to the lender) before the final mortgage contract is entered such as an offer of advance (offer letter), they can also make a non binding offer to complete further checks such as an offer in principle

Basically, Offer in principles are conditional offers that allows the lender to complete further checks before the final contract is entered into

Question 22

An offer letter must include an illustration, together with a tariff of charges, and
explain that there is a 14‑day reflection (or cooling‑off) period during which
the applicant can change their mind. The applicant can also waive their right
to the reflection period

Is this true?

Answer 22

False, everything is true except the cooling off period time length. It is 7 days

Question 23

After the vendor
has accepted the buyers offer and the mortgage offer has been issued from the lender, what are the next steps for the buyer?

Answer 23

Buyers solicitors will begin conveyancing process where checks and searches on the property and its title are made

after this is done and everyone is happy, contracts will be written up and sent to each party

Once done, exchange of contracts can take place where both parties agree. Once agreed, the buyer will normally pay a non refundable deposit

At this point there’s no going back as it is binding on both parties and if you break the agreement youll be breaching your contract

Question 24

Why is it important that the buyer arranges building insurance once an exchange of contracts has taken place?

Answer 24

Once contracts have been exchanged, the buyer is technically
responsible for any damage or loss to the building, even
though they don’t yet own it.

Therefore, its important
they insure the building from the point of exchange of
contracts.

A sensible vendor will make sure they also maintain their insurance – just in case the buyer fails to arrange cover.

Question 25

When contracts are exchanged the solicitors will agree a ‘completion’ date

Tell me about this

Answer 25

The completion date is the date by which the balance of the sale price is paid and keys are given to the buyer.

It is typically around 28 days after exchange, but in real life it is normally much sooner

Question 26

Why might a buyer and vendor choose to exchange contracts on a conditional basis?

Answer 26

For a typical exchange of contracts, it is binding on both parties once finalised.

By creating it on a conditional basis, it means the either party can withdraw if a certain condition is not met

For example, the buyer may add a condition where their old property must sell by a certain date so they can use the proceeds to pay for the new property and if it doesn’t sell they can withdraw from the agreement. This means an exchange of contracts can still happen but the buyer can still withdraw without penalty or breaching the contract

Question 27

When auctioning a property the vendor will set a reserve price

What is this?

Answer 27

reserve price – a minimum price that the vendor is prepared
to accept

If it not reached during bidding, the property is not sold

Question 28

What is the process as a buyer when a purchasing a property at auction?

Answer 28

Preparation before auction ( for example deposit, mortgage, valuation, pre-exchange legal all arranged )

Successful bid

Contracts exchanged
same day

10% deposit paid
same day (Non-refundable unless the vendor has misled the buyer)

Completion
within 28 days ( anything over will lead to penalties )

Question 29

Once a winning bid is accepted, a 10 per cent deposit is paid and contracts are
exchanged on the day of the auction

What work must be complete before the auction?

Answer 29

Financing is in place (mortgage agreed or cash)

The buyer will need to complete a survey, mortgage application and offer, and
preliminary legal work so exchange of contracts can take place on auction day

Question 30

What happens if an exchange of contracts takes place following an auction and the buyer reneges on the contract?

Answer 30

Reneges means to ‘go back on a promise, undertaking or contract’

The vendor is entitled to keep the deposit and resell the property.

If the resale results in a lower price, they can also claim the shortfall from the former buyer

Question 31

What are the downsides to consider when purchasing a property at auction?

Answer 31

All prep work such as valuation or/and legal fees need to be paid before the auction, without any guarantee of a successful bid

The property may need a lot of work done ontop of the auction costs

10% deposit needed same day and not returned

Not a guarantee (the bid may be unsuccessful)

No backing out once bid is accepted without losing a deposit - big price to pay for easy mistake

Question 32

The modern method of property auction is essentially a conditional auction carried out
online.

Very similar to sites like eBay in that
each property has a deadline by which bids must be made and bidders can
track activity

As a buyer what happens if you are the highest bidder?

Answer 32

When a successful bid is made, the bidder is required to pay a non‑refundable
reservation fee on the day of up to 5 per cent of the purchase price to secure the property

The buyer then has 28 days to exchange contracts and a further 28 days to complete

The reservation fee will be refundable if the sale cannot be completed DUE to a fault on the part of the vendor.

If the buyer withdraws before exchange of contracts, no recompense is due to the vendor, BUT the reservation fee will be lost