Topic 6 - Buying a property Flashcards
What are the typical stages of buying a property
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)
What are the two main ways to sell a property?
Private treaty (private bargain in Scotland)
Auction
What are the basic principles of a contract?
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)
Who is the principle
Who is the agent
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
Most contracts are based on the principle of ‘caveat emptor’
‘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
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
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
Who out of the following is the agent and who is the principle
Estate agent
The vendor
Agent (The estate agent)
Acts legally on
behalf of Principal
(The vendor)
Who grants the agent
certain powers
What is apparent authority, actual authority and ratification?
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
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
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
Typically speaking, the first stage of buying a property is to establish a budget
What should a buyer budget aim to achieve?
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)
What is an estate agents role?
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
What is the ‘asking price’ when selling a property?
The price at which the property will be marketed
What is an estate agent typically paid per sale of property?
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
What are the different ways an estate agent can operate?
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
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?
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
Do you have to have an estate agent as a vendor?
No, but they do help greatly in terms of marketing the house, the administrative work with solicitors and so on
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
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
What is gazdumping?
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
After a property buyers offer has been accepted by the vendor, what is the next step?
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
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?
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.
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?
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
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?
False, everything is true except the cooling off period time length. It is 7 days
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?
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
Why is it important that the buyer arranges building insurance once an exchange of contracts has taken place?
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.
