Presale / lockout agreement for residential property

sebtomato

Hi,

I have just made an offer on a flat, and I understand it can take 6-8 weeks before the contract, and therefore there is no guarantee the seller won't change his mind.

I understand it is possible to make a presale agreement, where each party provides a deposit of 1.5%, and loses the deposit if change of mind.

Is it common to have such contract for a residential property?
Would the estate agent manage the contract?
Who would keep both deposits?

Thanks,
Seb

pie81

This kind of agreement isn't common in the UK, so I'd be surprised if the seller would agree to this, but no harm in suggesting I suppose (at least it would show you are serious). I would imagine that your respective solicitors would hold the deposits.

GDB2222

For a solicitor's view, see here:
http://www.swarb.co.uk/lawb/cvrLockout.shtml

As a seller, I wouldn't agree to a lockout agreement. However, I would agree to reimburse a buyer's costs up to a certain figure if I decided to go with a different buyer.

I think that sellers should insist on marketing their property right up to the date of exchange. It gives buyers an incentive to proceed as fast as possible. At the same time, an agreement to reimburse wasted fees seems only reasonable and encourages buyers to make the effort.

sebtomato

GDB2222 wrote: »

As a seller, I wouldn't agree to a lockout agreement. However, I would agree to reimburse a buyer's costs up to a certain figure if I decided to go with a different buyer.

Thank you for the advice, I could get them to sign such reimbursement agreement. However, as a first time buyer, I am not sure what would be my sunk cost if they were to pull out before the contract exchange.

I guess:

• Solicitor fees (although I understand some solicitors don't charge if there is no contract signed)
• Mortgage arrangement fees (not sure if those still apply if the mortgage is not used)
• Valuation fees
• Etc

I guess I could easily be 2 or £3000 out of pocket.

PasturesNew

It would be most irregular and peculiar to the seller for you to come up with any oddball scheme and try to tie them into it. From Day One they'd have you down as a nutter seller and would not have confidence that you'd be able to complete.

Buying/selling risks work both ways - you might pull out during the process. Buying a house is a risky business - and costly for the buyer if for any reason the sell falls through. I myself had three full surveys done on houses that I wanted to buy in 1999/2000 at a cost of £800 apiece.

It's just the way things are done.

sebtomato

PasturesNew wrote: »

From Day One they'd have you down as a nutter seller and would not have confidence that you'd be able to complete.

...or they would be thinking I am very serious about buying it!. In many other countries, both seller and buyer put 1.5% of the property value as a deposit at the time of the offer, to seal the deal. The UK system of informal offers with no commitments from the seller is the peculiar thing here.

PasturesNew wrote: »

Buying/selling risks work both ways - you might pull out during the process

Sure, but what is the cost for the seller if they pull out of the process? They wouldn't pay estate agent fees, etc.
Basically, they can try to carry on marketing the property, and sell to someone offering more money at the last minute, and they have no incentive not to do it.
If they were to sell it to someone else for £5K or £10K more, it would make perfect sense for them to reimburse my cost. If I am the one dropping, then I have lost what I have spent.

GDB2222

sebtomato wrote: »

Thank you for the advice, I could get them to sign such reimbursement agreement. However, as a first time buyer, I am not sure what would be my sunk cost if they were to pull out before the contract exchange.

I guess:

• Solicitor fees (although I understand some solicitors don't charge if there is no contract signed)
• Mortgage arrangement fees (not sure if those still apply if the mortgage is not used)
• Valuation fees
• Etc

I guess I could easily be 2 or £3000 out of pocket.

The one time I did this, I had two interested buyers, and I offered them both the same deal. This was to reimburse the disappointed buyer up to £500. That covered a basic mortgage valuation and part of the solicitors fees.

I don't think it's realistic to ask your seller for more than that, and I offered it for a specific reason, ie to keep both buyers interested.

I think that the mortgage arrangement fee is transferable to another property, but I don't know for sure as the last mortgage I took out was in 1997 and things have changed since then. At that time, Halifax paid me £1000 for taking out the mortgage with them!

PasturesNew

sebtomato wrote: »

...or they would be thinking I am very serious about buying it!. In many other countries, both seller and buyer put 1.5% of the property value as a deposit at the time of the offer, to seal the deal. The UK system of informal offers with no commitments from the seller is the peculiar thing here.

When you put your offer in though, you don't know that the house is safe/sound, you don't know that the sellers own it, you don't know if a motorway is proposed to go through the living room and you don't know if a lender will lend you the money to buy that house in your financial circumstances.

sebtomato wrote: »

Sure, but what is the cost for the seller if they pull out of the process? They wouldn't pay estate agent fees, etc.

They might have to pay agent fees if they pulled out because the EA's agreement will say they found a "willing and able buyer", so the fees would still be due. The only time they wouldn't have to pay them is if they seller continued to market their house through that agent or just found another buyer through the agent.

It's !!!!!!, but it's the way it's done.

sebtomato

PasturesNew wrote: »

When you put your offer in though, you don't know that the house is safe/sound, you don't know that the sellers own it, you don't know if a motorway is proposed to go through the living room and you don't know if a lender will lend you the money to buy that house in your financial circumstances.

Nobody is denying that there are some investigations to do before signing a contract, but what is that anything to do with locking an offer subject to survey, contract, mortgage etc? In many countries, the seller or buyer would lose their 1.5% pre-sale deposit if they were pulling out due to their own choice.

Fire_Fox

sebtomato wrote: »

Nobody is denying that there are some investigations to do before signing a contract, but what is that anything to do with locking an offer subject to survey, contract, mortgage etc? In many countries, the seller or buyer would lose their 1.5% pre-sale deposit if they were pulling out due to their own choice.

All offers are subject to the above clauses, where is the benefit to the vendor in the lock-in you propose? You can pull out if your don't get a mortgage, don't like the results of the survey or searches, find out the management company are planning a new lift costing £10K per flat?

On what grounds would you allow the vendor a get-out: relationship breakdown, redundancy, dog ate the contract? As soon as you add clauses your lock-in is unenforceable, you can't prove why someone got cold feet.

sebtomato

Fire_Fox wrote: »

All offers are subject to the above clauses, where is the benefit to the vendor in the lock-in you propose?

Sorry, but you are missing the point: the benefit is for the buyer (to protect the buyer, since the current system has very little protection for the buyer), not for the seller. If the seller does not like the conditions, then he does not have to accept the offer and pre-sale agreement.