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    • b80
    • By b80 10th Jul 17, 10:11 PM
    • 26Posts
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    b80
    Selling house to developers - is an index in our best interest
    • #1
    • 10th Jul 17, 10:11 PM
    Selling house to developers - is an index in our best interest 10th Jul 17 at 10:11 PM
    Hi

    We're just about to enter into an option agreement for a 6 month period to sell our house to developers who want to build a house next door.

    We've been through terms with them. The one sticking point is regarding house price indexing.they have offered to put this in to ensure we are selling at a fair price above market value, but obviously this can go up or down.

    The deal is option agreement for 6 month followed by 8 week exchange of contract and uo to 2 years completion. The hpi would kick in only if there was s delay on behalf of the purchaser that took us over the 2 year completion.they have stated the hpi would be null and void if the agreement was due to us.

    Our concern is that the area we live in holds house prices well in comparison to other areas of the country and a crash could mean we would have to sell at a price governed by the hpi which may be lower the price than the average in our town.

    Would be interested in your opinion. We're novices to this kind of thing so we may be missing something obvious here!
Page 1
    • Doozergirl
    • By Doozergirl 10th Jul 17, 10:29 PM
    • 23,897 Posts
    • 66,427 Thanks
    Doozergirl
    • #2
    • 10th Jul 17, 10:29 PM
    • #2
    • 10th Jul 17, 10:29 PM
    The obvious thing would be to go for the planning permission yourselves!
    Everything that is supposed to be in heaven is already here on earth.
    • davidmcn
    • By davidmcn 10th Jul 17, 11:56 PM
    • 5,934 Posts
    • 5,690 Thanks
    davidmcn
    • #3
    • 10th Jul 17, 11:56 PM
    • #3
    • 10th Jul 17, 11:56 PM
    We're novices to this kind of thing so we may be missing something obvious here!
    Originally posted by b80
    So have you not had any professional advice so far? Surveyor to advise you whether the commercial terms are decent? Solicitor to adjust the drafting?

    (I'm hoping that "just about to enter into an option agreement" doesn't mean "just about to sign the contract put in front of us by the developer"!)
    • b80
    • By b80 11th Jul 17, 5:36 AM
    • 26 Posts
    • 2 Thanks
    b80
    • #4
    • 11th Jul 17, 5:36 AM
    • #4
    • 11th Jul 17, 5:36 AM
    Fair comments guys... Yes we have on the pints raised.

    What do you think about the indexing... would we be better off leaving it oh?
    • Doozergirl
    • By Doozergirl 11th Jul 17, 7:09 AM
    • 23,897 Posts
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    Doozergirl
    • #5
    • 11th Jul 17, 7:09 AM
    • #5
    • 11th Jul 17, 7:09 AM
    This is an option for one house? And you're giving them 2.5 years to complete and still after that there's more time and the price can fluctuate?

    It sounds ridiculous. That's pretty ownerous for one house. I wouldn't sell under those terms.

    You're worried about HPI but the developer is going to take the majority of the profit from the land increase, so from day one you're selling for less than end value for the convenience of them hiring the architect. And giving them forever to do it. Never mind your HPI clause later down the line.
    Everything that is supposed to be in heaven is already here on earth.
    • getmore4less
    • By getmore4less 11th Jul 17, 7:25 AM
    • 29,996 Posts
    • 17,928 Thanks
    getmore4less
    • #6
    • 11th Jul 17, 7:25 AM
    • #6
    • 11th Jul 17, 7:25 AM
    I can't see what is in this for you.

    reminds me of the deal some neighbors to my dad struck with a developer to buy the bottom of their very long gardens, to be paid when the houses were complete and sold on, never saw a penny as the developer went bust.

    Potential down side your developer goes bust and does not complete.
    whats your place going to be worth next to a building site with an uncompleted house?
    • bowlhead99
    • By bowlhead99 11th Jul 17, 7:30 AM
    • 6,741 Posts
    • 12,011 Thanks
    bowlhead99
    • #7
    • 11th Jul 17, 7:30 AM
    • #7
    • 11th Jul 17, 7:30 AM
    Why not make the indexing lopsided so that if they delay completion beyond two years they have to pay 100% of any index increase or can reduce the price by 50% of any index decrease? Or some other measure that makes the deal workable for you.

    Or that any decrease is only halfway between the HPI decrease and the movement in RPI over the same period. If you have planned to receive £100k of proceeds at Christmas 2019 and they delay completion until 2020 or beyond, and house prices are down by 20% but your cost of living has gone up by 20%, you don't want to just receive £80k. Because unless all cash was exclusively going to be used for a further property investment you are going to feel out of pocket as well as having had your life on hold for years knowing that you might have to move house at any point in the next month whenever they get their act together. Not adequate compensation in my view.

    Also, are you satisfied that if they have exercised the option in the first six months so that you definitely have to sell to them and cannot release cash from your property for anything from a few weeks to a few years, all that happens if they unreasonably delay completion to over the two years is that your eventual proceeds tick up by a few percent in line with house price index - or even goes down, if the index is down? What if you are waiting three or four years and you have other pressing needs for cash due to a change in your personal circumstances?

    Personally I would be saying to the developer something like:

    1) if you want an option to buy this house at some point in the next 6 months so I can't sell to anyone else, I will need a decent nonrefundable option payment and not just a promise that the eventual offer, *if* forthcoming, would be for more than the 'market value'. In other words you need to pay me to buy the option I'm granting to you which stops me selling to another party over the next 6-8 months while you consider if you're going to go ahead and exchange contracts and perhaps actually exchange them and perhaps not.

    2) If we've exchanged contracts and are waiting for completion and you make me wait two years or more in limbo for my money, the eventual proceeds need to be at a bare minimum, at least as much as I would have got by waiting the two years plus and doing my 'above market' deal at that point, i.e. minimum increase of the house price index for England (if you're in England). Actually make it 'the greater of the HPI for England and the HPI for the UK' because I primarily want to keep pace with the local market but I might use the proceeds to buy elsewhere.

    3) If we've exchanged contracts and are waiting for completion and you make me wait two years or more in limbo to access the cash from our agreed sale, I want the eventual proceeds to be at a bare minimum, at least as much in real terms as they are today using some inflation measure of consumer prices e.g. CPIH

    So, I need
    (a) an option payment when I sell you the option,

    (b) a further nonrefundable deposit at exchange (which is enough to compensate me if you eventually walk away from the transaction and never complete by some arbitrary long-stop date e.g. 36 months from exchange because I can't wait forever just in case); and

    (c) if completion does go ahead but occurs 24-36 months after exchange due to delays which are not my fault, I need the price to be the greater of that calculated under methods (2) and (3).

    If the developer says he doesn't want to pay the greater of (2) and (3) because that means house prices could fall 30% from today's prices and he still pays more money than today's price, you could tell him it is his fault for not completing earlier, but maybe then compromise and say OK, if (2) is greater than (3) it will be (2), and if (2) is less than (3) it will be the arithmetic average of (2) and (3).

    E.g. if inflation is 10% and house price fall is 30%, he pays you £90k (half way between £70k and £110k) per £100k of today's price.

    Everything is a negotiation so you can put whatever you want in an option agreement. Presumably if they have prepared a contract they want you to sign, it contains everything that *they* want and not necessarily everything *you* want or everything they would be willing to pay for if they had to, for the opportunity.

    If you have already taken professional advice and are happy with the consequences of going ahead, then who am I to interject. But it sounds like you are not happy with the potential consequences otherwise you wouldn't be asking here. So you need to decide what potential consequences you *would* be happy with, and ask for those instead.
    Last edited by bowlhead99; 11-07-2017 at 7:34 AM.
    • eddddy
    • By eddddy 11th Jul 17, 10:24 AM
    • 5,271 Posts
    • 4,910 Thanks
    eddddy
    • #8
    • 11th Jul 17, 10:24 AM
    • #8
    • 11th Jul 17, 10:24 AM
    FWIW, a cleaner solution is for you to just agree that you get x% of the final sale price of the house - whatever that is. But...

    You need professional advice from a specialist solicitor, a specialist land valuer/agent, and perhaps a specialist tax advisor.

    For example,
    What happens if the developer builds half a house and then goes bust? (You need a contract that deals with any/all eventualities.)

    Could you get a better/cleaner deal by selling to another developer?

    There are potential "tax traps". As the house is your main residence, you can typically sell the garden with no CGT liability. But if development starts whilst you still own the land, I think that CGT can kick-in.
    Last edited by eddddy; 11-07-2017 at 10:26 AM.
    • AnotherJoe
    • By AnotherJoe 11th Jul 17, 10:47 AM
    • 7,387 Posts
    • 7,919 Thanks
    AnotherJoe
    • #9
    • 11th Jul 17, 10:47 AM
    • #9
    • 11th Jul 17, 10:47 AM
    Hi

    We're just about to enter into an option agreement for a 6 month period to sell our house to developers who want to build a house next door.

    We've been through terms with them. The one sticking point is regarding house price indexing.they have offered to put this in to ensure we are selling at a fair price above market value, but obviously this can go up or down.

    The deal is option agreement for 6 month followed by 8 week exchange of contract and uo to 2 years completion. The hpi would kick in only if there was s delay on behalf of the purchaser that took us over the 2 year completion.they have stated the hpi would be null and void if the agreement was due to us.

    Our concern is that the area we live in holds house prices well in comparison to other areas of the country and a crash could mean we would have to sell at a price governed by the hpi which may be lower the price than the average in our town.

    Would be interested in your opinion. We're novices to this kind of thing so we may be missing something obvious here!
    Originally posted by b80
    Would depend what HPI you were using. There isnt just one.
    You could create your own personal HPI of one, your house, by having it professionally valued instead of using a general index.

    However, I'd be much more concerned about the 2 year delay. Or is it even 2.5 years?

    Why not just have it all done up front, they buy from you, they pay you up front, you rent from them for a minimum of one year.

    If the answer is "well we cant afford that as we are financing the purchase from profits when selling", then as said, how do you deal with them going bust?
    • eddddy
    • By eddddy 11th Jul 17, 11:33 AM
    • 5,271 Posts
    • 4,910 Thanks
    eddddy
    If the answer is "well we cant afford that as we are financing the purchase from profits when selling", then as said, how do you deal with them going bust?
    Originally posted by AnotherJoe
    It sounds like the plan is that the OP's sale of the land completes at the same time as the sale of the newly built house completes.

    i.e. the OP owns the land right up until the point that new house is sold.

    So if the builder goes bust, the OP just keeps the land.

    It's just the headache of ending up with a half built house on your land. It may be possible to profit by selling it to another builder, or there may be the cost of demolishing it.

    (The contract could even include a bond held by the solicitor, to cover potential demolition costs.)

    All this is achievable - but you need a good solicitor.
    • Crashy Time
    • By Crashy Time 11th Jul 17, 12:54 PM
    • 5,012 Posts
    • 2,157 Thanks
    Crashy Time
    I can't see what is in this for you.

    reminds me of the deal some neighbors to my dad struck with a developer to buy the bottom of their very long gardens, to be paid when the houses were complete and sold on, never saw a penny as the developer went bust.

    Potential down side your developer goes bust and does not complete.
    whats your place going to be worth next to a building site with an uncompleted house
    ?
    Originally posted by getmore4less

    Exactly..... There will be a fair few over-stretched developers around at the moment IMO.
    • Crashy Time
    • By Crashy Time 11th Jul 17, 1:16 PM
    • 5,012 Posts
    • 2,157 Thanks
    Crashy Time
    http://www.standard.co.uk/business/carillion-in-crisis-as-contract-bungles-deal-845-million-blow-a3584146.html
    • eddddy
    • By eddddy 11th Jul 17, 1:33 PM
    • 5,271 Posts
    • 4,910 Thanks
    eddddy
    Yes - I can see why the OP should be really worried by this article:

    Three major public-private partnership contracts — the Midland Metropolitan Hospital in Smethwick, Merseyside’s Royal Liverpool Hospital, and an Aberdeen road project — are understood to be behind the bulk of the UK’s £375 million losses.

    Its £470 million writedowns in overseas markets are driven by losses on a major project in Doha, Qatar.
    The OP needs to check really carefully that the developer isn't planning to build a PPP hospital in his garden...

    ... and also make sure that his garden isn't in Doha, Qatar. (If there's lots of sand in the OPs garden and today's temperature is 42 degrees C, the OP should check Google maps urgently!)
    • nubbins
    • By nubbins 11th Jul 17, 3:22 PM
    • 689 Posts
    • 927 Thanks
    nubbins
    The OP needs to check really carefully that the developer isn't planning to build a PPP hospital in his garden...

    ... and also make sure that his garden isn't in Doha, Qatar. (If there's lots of sand in the OPs garden and today's temperature is 42 degrees C, the OP should check Google maps urgently!)

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