Reserved property with decline in valuation

JayHam

Hi,

I'm new to the forum but already have found plenty of useful information, so cheers all.

The current situation I face is that I have had a £500 reservation fee on a apartment now for over 4 months as the builder agreed to a late completion (Apr-May) to coincide with the end of my rental agreement. The price I agreed was £186,000 back in October 2008.

I now have my decision in principal and deposit all sorted but have noticed the developer has released another plot with the same square footage as the apartment I have reserved but maybe the layout is a little less inviting. These apartments are valued at £170,000.

I have been accepted on the developers 'shared equity' scheme for 25% of the purchase price.

My problem is I'm now thinking the property must be valued nearer the £170,000 mark and I'm looking at negative equity from the outset.

Should I try to re-negotiate the price or have a go at some free upgrades? Or should I simply pull out and attempt to purchase the newly released apartments (which I think are just as perfect) and save £16,000+? Will the devloper likely accept my offer if I've backed out of one agreement already?

Also is the mortgage provider likely to pick up on an over valuation and reject the mortgage application?

I really don't want to mess the developer around as they've been so good on delaying completion and incentives, I'm just struggling on what to aim for and how to go about it?

Your help and opinions are much appreciated,

Jay

Robert_Sterling_3

IF it is possible to forfeit the £500, save £17,000 on the price and get something very similar to the original property how could you not do so. Even then £170,000 is the asking price for the alternative property with plenty of room itself for reduction.:j

JayHam

Cheers for the advice Robert,

I'm just really worried that the developer will not allow a second offer on a different apartment after messing them about! Suppose I won't know until I ask?!?!

Richard_Webster

These apartments are valued at £170,000.

New build flats are generally overpriced, so they are probably actually worth more like £140,000. As I always tell people, go and look at what similar 5-20 year old flats are selling for in the area. Will you be seriously able to justify a price differential for a newer flat in 5 years time?

As for the 25% shared equity scheme, there have been plenty of threads about these schemes. For example if you buy for £170K with a 75% mortgage of £127,500 and a £42,500 shared equity loan and when you try to sell you can only get £140K then you will owe the builder £35K but you won't have that much available because you will still owe your lender the best part of £127.5K.

Cissi

Why would you even contemplate going through with the original purchase when prices have fallen as much as they have since you agreed the price (and for newbuilds especially)? The builders themselves are admitting the price falls, by pricing the latest ones at 10% below what you paid (and that's asking price)!

If it were me, I'd walk away, forfeit the £500 and thank my lucky star that was all I'd lost! Even if you did manage to negotiate a lower price on one of the £170k flats you'd almost certainly end up in negative equity very quickly. As Richard Webster pointed out, with a 25% shared equity scheme you'd risk finding yourself up a creek without a paddle...

pinkshoes

JayHam wrote: »

I'm just really worried that the developer will not allow a second offer on a different apartment after messing them about! Suppose I won't know until I ask?!?!

Regarding the asking price, you need to do some more research. Is this £170k a similar price to what older flats are worth in the area, or similar sized houses? It all depends on supply and demand in your area... Some city centres have overbuilt flats (Birmingham in particular), so prices are now dropping rapidly. In other cities prices are no different to any other property of the same size.

What are the t&c's on your £500 deposit? Ours stated that it was non refundable and that we had reserved the flat, but we had no signed agreement for an exchange date due to the building not being completed. We discovered that the way it was worded, although it was non refundable, it still stated that so long as we had paid, it was reserved to us, so by default if they wanted to sell to anyone else, they had to refund us.

After doing some research, print out proof of other property prices in the area, and go in with your negotiations. Cash flow and sales are important to builders, so they will probably agree. A sale is better than no sale!

zaphod_beeblebrox_2

Or should I simply pull out and attempt to purchase the newly released apartments

As stated already, new builds are overpriced

zaphod_beeblebrox_2

Robert_Sterling_3

zaphod_beeblebrox wrote: »

As stated already, new builds are overpriced

A bit like new cars which offer better value after a couple of years.

plumduff55

Hi, although I've posted often I have never started a thread ( and not sure how to) so I hope you don't mind if I add aquestion to this thread.

My son and daughter in law paid a deposit and signed the missives on a new build flat last March, they had a 90% mortgage in place which the bs agreed to hold for 1 year. They were hoping to move into the new flat on return from their honeymoon on August but the flat has still not been finished and they are now living with their in laws. They have lost the 90% mortgage and are unable to secure a similar mortgage or one that is based on the original asking price. Their lawyer has written 3 times to the builder/developer with no success.
Q1. To request the purchase price be reduced in line with house price falls - A. No
Q2. To request that the contract be cancelled - A. Builder would sue if contract not completed.
Q3. Couple are no longer able to proceed as unable to obtain finance to cover purchase price. Still waiting for a reply to this question.
If the flat is not completed by August 09 there is a get out clause.

I dont know if anyone can give me any advice/information that may help them but I just feel so frustrated and upset for them. They can't buy the flat but they can't get out of the sale! Hope someone can help.

Enfieldian

Sorry if you have already stated this above but:

Do you have a mortgage offer or just an AIP?

Has any form of survey been done?

If you only have an AIP, then you BS will appoint a surveyor (at your expense) to value the purchase.

If this valuation is below the price agreed then your course of action is simple. Revise your offer and send a copy of the valuation to substantiate it.

If the builder will not agree to a reduction then walk away.

At this point you are now any Estate Agent's best friend as a qualified, willing and able buyer.

Good luck.