Why does anybody exchange on an unbuilt property?

ILW

I am probably being a bit dim here but, after seeing much news of people being caught out by exchnging contracts on unbuilt new build propertys and then a year or so down the line having all sorts of problems with raising the money etc.
I just cannot understand why anybody does it. I can see the logic of paying a non refundable holding deposit of say £1000 to prove goodwill, but actually entering into a contact to complete a year or so in the future seems total madness as all sorts of things could happen.
Could someone please explain to me.

PasturesNew

They do pressurise you. I am in this situation at the moment with somebody where their house is sold but not exchanged - and the developers are putting pressure on for them to sign an exchange within 2 weeks on a house they say won't even be complete until December 09 (which of course we know will stretch to January) ... in this case, the person they are doing this to is very strong and would tell them to shove it up their A$$ and would be prepared to walk away from it. They won't be signing anything until their exchange has happened.

But others are scared, frightened of losing their paltry deposit, bullied into it, believe there really IS a rush for it and they'll lose their "dream home". For my friend, there's nothing on the market even vaguely comparable, yet they won't be bullied into thinking there's a rush - and if they lose it well, that's life isn't it.

misspoppy

You are told by the sales people that you must exchange so I guess most people don't question it.

tek-monkey

I wouldn't commit to spend that much money on something that didn't exist unless I had a HEFTY discount. I'd also want reductions for every day late they were, and an independant valuation after to ensure they'd not cut corners.

But then I'd never buy a new build off any of these big companies!

laughingcow81

We were looking at purchasing a new build, through the Home Buy direct (??) scheme. However the properties that they were offering on the scheme seemed too small for the price.

The company offering the homes were very persistent, they called me practically every single day to ask if we were interested, if everything was ok, if they could help us, and most of the time I didn't pick up the phone!

I can see how some people can get sucked in to signing for a property that doesn't exist yet, especially as the sales pitches and the wonderful computer generated images are so convincing. I can imagine for a lot of first time buyers (like us) it seems too good to be true - getting a lovely brand spanking new home for a reasonable (!) price.

barnaby-bear

ILW wrote: »

I am probably being a bit dim here but, after seeing much news of people being caught out by exchnging contracts on unbuilt new build propertys and then a year or so down the line having all sorts of problems with raising the money etc.
I just cannot understand why anybody does it. I can see the logic of paying a non refundable holding deposit of say £1000 to prove goodwill, but actually entering into a contact to complete a year or so in the future seems total madness as all sorts of things could happen.
Could someone please explain to me.

An awful lot of the cases are in scotland where an offer is more binding - people rave about how great it is because it commits everyone early on..... but forget to mention this issue.... basically because it's improbably to offer and receive an offer on your house within two seconds you can get this much more easily there.... it's a gamble commiting - people were boasting a few years when prices were rising because it meant they bought off plan and locked the price and could sell it on for a profit..... only gamble what you can afford to lose..... the builder knew had a sale the buyer that the price was fixed....

franklee

Buying off plan was all the rage during the boom years. In a rising market the property is worth more at completion than the purchase price agreed many months beforehand. So by putting just a 10% deposit down you can make a big profit as come a year later, when you have to complete, the property is now worth more than you have to pay. Some people even sold the property on right away thus pocketing the profit without ever having to pay the full price.

Obviously people buying for a home had to compete with the investors and thus had to by early off plan too. But they were happy as the value was going up while they waited for the build and as they didn't have to pay more than 10% upfront they could wait in their current home knowing that was going up in value too. So everyone was doing it.

The problems only started when valuations for the finished property started falling. The people you mention who agreed to buy a year or two ago probably didn't anticipate these falls would ever happen to them. I would hope that people would be more sensible now but suspect the builders are reluctant to change their contracts.

lincroft1710

I am far too polite to venture the opinion that people who do this are stupid, so I won't.