Repairs allowance instead of revising purchase price

lxx

Hello,

I am a first time buyer in the process of buying a house. The vendor is buying a vacant house through the same estate agent, the exchanging deadline for the house he is buying is 28 August thetherefore I was asked to exchange on the same day as a condition, which is in less than 2 weeks' time!

I had Santander mortgage offer and deposit ready. The survey identified damp problem and repairs costs estimated to be 15k. After negotiation the vendor agreed to contribute 5k towards the repairs and some free kitchen appliances. However, instead of revising the purchase price, the vendor insisted keeping the original purchase price, but giving 5k allowance instead. Is it a normal practice to avoid revising the mortgage offer?

I was given a link to "CML lenders' handbook for conveyancers" (sorry not allowed to post a link as a new user however if you google the following Santander paragraph it should come up as the second result - the first result is for Northern Ireland).

Under Santander it says:
"The purchase price must also exclude the value of all concessions, discounts and any other benefit provided by the seller as well as the value of any carpets, curtains, furnishings and appliances included in the sale."

My solicitor has written to Santander notifying the allowance, not sure if it's going to be rejected. It takes 3 working days to revise the mortgage offer however Santander could fax the revised offer if necessary.

I understand I need to pay 3% stamp duty on the 5k allowance, which is the cost I have to absorb, as the extra 10k repairs :sad: However I wish to know if there is any other potential problems/disadvantage to reflect the repairs contribution as allowance instead of lowering purchase price?

Also regarding the free appliances, does the vendor need to revise the fixtures/fittings register? Originally he asked for around 1k for the applicances.

Any comments welcome, thank you for your kind help in advance

G_M

lxx wrote: »

Hello,

I am a first time buyer in the process of buying a house. The vendor is buying a vacant house through the same estate agent, the exchanging deadline for the house he is buying is 28 August thetherefore I was asked to exchange on the same day as a condition, which is in less than 2 weeks' time!
well if your exchange date slips beyond 28th aug, what will the seller do? Go back on the marlet and spend 6 weeks finging a new buyer and getting to this point again? Just move forawrd as fast as you can but don't be pressured.

I had Santander mortgage offer and deposit ready. The survey identified damp problem and repairs costs estimated to be 15k.
Must be very serious damp. I doubt this. However you've made a deal for £5K, so get repairs done at your own expense later

After negotiation the vendor agreed to contribute 5k towards the repairs and some free kitchen appliances. However, instead of revising the purchase price, the vendor insisted keeping the original purchase price, but giving 5k allowance instead. Is it a normal practice to avoid revising the mortgage offer?
No. So how will you get this 5K? And when? Is it written into the contract? If not, what if the seller does not pay?
For stamp duty purposes, AND for mortgage purporses, it is a link expense - so effectively, it is part of the purchase price.

Reduce the purchase price by £5K.

It takes 3 working days to revise the mortgage offer however Santander could fax the revised offer if necessary.
This.

I understand I need to pay 3% stamp duty on the 5k allowance, Reduce the purchase price by £5K and you'll pay less SDwhich is the cost I have to absorb, as the extra 10k repairs :sad: Investigate the cause of the damp further later - I doubt it will cos £15K
....

Also regarding the free appliances, does the vendor need to revise the fixtures/fittings register?
Of course. What do you think the F&T register is for?
Originally he asked for around 1k for the applicances.

Any comments welcome, thank you for your kind help in advance

hope that helps.

kingstreet

lxx wrote: »

The survey identified damp problem and repairs costs estimated to be 15k

You would be expected to obtain specialist reports & estimates to confirm the actual cost, rather than rely on the chartered surveyor's opinion of cost which is usually dramatically higher, IMHO.

You should be getting an independent timber & damp surveyor to inspect and report. See here;-

http://www.independentdampsurveyors.co.uk/

Do not get a "free" report from a firm which makes money from timber treatment or damp course installation. Pay for an objective inspection and report.

As Santander won't accept any element of vendor gifted deposit, this "allowance" will be deducted from the valuation like a price reduction.

bouicca21

When I bought my flat an allowance was made for a particular issue. It seemed to be standard practice - the purchase price remained as originally agreed and appears as such on land registry prices, but I actually paid purchase price minus allowance.

Mind you the thought of 15K for damp rectification would terrify me.

Hoploz

bouicca21 wrote: »

When I bought my flat an allowance was made for a particular issue. It seemed to be standard practice - the purchase price remained as originally agreed and appears as such on land registry prices, but I actually paid purchase price minus allowance

^^ this.

I don't think it's unusual to do it this way around. On the +ve side it keeps things simple for paperwork eg contract amount. However on the -ve side you pay stamp duty on the full amount.

What benefit is it to the seller? Is it just that they think it'll be quicker? Lender will still have to be informed so it probably wouldn't make much difference in reality. Given the choice I'd say stick to your guns as then you've got less stamp duty to pay!

davidmcn

If the agents are being paid a percentage then there's a (probably minor) benefit to them.

In reality you're agreeing that the property is worth 5k less than you thought, so why not just take it off the price? The only advantage I can see to the purchaser is that the "headline" price is what appears in the registers etc, so it might enhance future valuations.

lxx

G_M wrote: »

hope that helps.

Thanks a lot G_M

1) I suppose if the exchange does not happen on 28 August, the vendor may lose the house he's buying and I won't be able to buy his house.

2) The 15k is not only for the damp, the breakdown is as follows(per suryey report):

"a) Provide the main roof with additional timber strut support £1500.00
b) Overhaul flashings to rear conservatory 200.00
c) External Redecorations to rear elevation walls £2500.00
d) Take out cupboards and hack off damaged plaster to conservatory
Carry out Eradicate Dampness to Conservatory & Reinstate
£4000.00
e) Take out existing kitchen sink and base cupboards and
cap off temporary water and drainage supplies
Hack off defective plaster to wall in kitchen and re-plaster
Supply and fit new kitchen sink and base cupboards
and reinstate water and drainage supplies to kitchen sink £3000.00
f) Take up existing tiles to the rear garden and clear away 500.00
g) Repoint rear external garden wall £2000.00
£13700.00
Contingency @ 10% for £1370.00
Total estimate £15070.00
NB: These figure are ballpark should be verified by estimates."

The estate agent knew the damp problem before the survey and had got a report from Kiltox, quoting the price of £720 for the damp proof course only. The reports says：
"Kitchen
Rising Damp Inspection
All readily accessible walls of solid construction were inspected for rising dampness both visually and with the aid of a specialist moisture detection meter. Significantly high moisture content readings were obtained at the time of our inspection indicating the presence of Rising Damp.
The original damp proof course is believed either to be absent or to have come to the end of its useful life, thereby allowing the brickwork to be subjected to rising dampness caused by capillary action of sub-site moisture.

Utility Area
Rising Damp Inspection
All readily accessible walls of solid construction were inspected for rising dampness both visually and with the aid of a specialist moisture detection meter. Significantly high moisture content readings were obtained at the time of our inspection indicating the presence of Rising Damp.
The original damp proof course is believed either to be absent or to have come to the end of its useful life, thereby allowing the brickwork to be subjected to rising dampness caused by capillary action of sub-site moisture.

Bathroom
Rising Damp Inspection – Restricted
Unfortunately due to full tiling and dry lining, we were unable to take the necessary readings and are therefore unable to comment on the presence of rising damp in this area."

The building survey report reads:
"The damp proof course is concealed within the building and therefore could not be
inspected, however it is usual for buildings of this type and age to be fitted with a
slate DPC (damp proof course). Readings with our electronic moisture meter were
taken at random points on the internal surfaces of the ground floor internal walls
surfaces and adverse readings were obtained in the following locations:
a) Rear party wall within the dining room
b) Flank and internal walls to the conservatory.

We have formed the opinion that the dampness has resulted due to the external
render becoming porous, and water is subsequently drawn through the rendering via
capillary attraction and subsequently bridges the damp proof course and water
ingress and dampness subsequently ensues."

I asked to get an independent damp specialist to do another survey and quotation, the estate agent said there was no time for that! I will do it after the completion.

3) My solicitor has confirmed that the revised contract reflected the 5k allowance. Of course I prefer to reduce the purchase price by 5k, just the vendor (probably the estate agent) did not want to do it. I am not sure if the transaction would fall through if I insist reducing the purchase price . It's such a stressful process, I do not really want to start from scratch again...

4) Will check the fixtures/fitting register when my solicitor forwards it to me. I don't really want to get them for £1k but the vendor did not give me a choice.

5) My surveyor asked my solicitor to check the following:
"There is an opening in the spine partition wall between the rear reception room, and
the kitchen. We are unable to confirm if adequate beam support (RSJ) has been
installed as plaster finishes conceal the structure. Your Legal advisor should confirm
the necessary consents were obtained and advise you accordingly."

However my solicitor said she might not get a reply for this - she has asked the question some time ago but the vendor's solicitor has not replied so far. The estate Agent said I just needed to get an insurance for it, any comments on this?

Thanks again for your time and suggestions, much appreciated!

lxx

kingstreet wrote: »

You would be expected to obtain specialist reports & estimates to confirm the actual cost, rather than rely on the chartered surveyor's opinion of cost which is usually dramatically higher, IMHO.

You should be getting an independent timber & damp surveyor to inspect and report. See here;-

Do not get a "free" report from a firm which makes money from timber treatment or damp course installation. Pay for an objective inspection and report.

As Santander won't accept any element of vendor gifted deposit, this "allowance" will be deducted from the valuation like a price reduction.

Thank you for your advice and the link Kingstreet

I did offer to get an independent damp specialist to do another survey and quotation, the estate agent said there was no time for that! I will do it after the completion.

I hope Santander would reject the allowance, so we can do things properly (reducing the purchase price). However the EA and the vendor may not like it!

lxx

bouicca21 wrote: »

When I bought my flat an allowance was made for a particular issue. It seemed to be standard practice - the purchase price remained as originally agreed and appears as such on land registry prices, but I actually paid purchase price minus allowance.

Mind you the thought of 15K for damp rectification would terrify me.

Thank you bouicca21

Did you bank object to the allowance or did you buy by cash?

The 15k is not only for the damp, details please refer to post 7#

lxx

Hoploz wrote: »

^^ this.

I don't think it's unusual to do it this way around. On the +ve side it keeps things simple for paperwork eg contract amount. However on the -ve side you pay stamp duty on the full amount.

What benefit is it to the seller? Is it just that they think it'll be quicker? Lender will still have to be informed so it probably wouldn't make much difference in reality. Given the choice I'd say stick to your guns as then you've got less stamp duty to pay!

Thanks Hoploz:)

I suspect it was the EA's idea for commission purposes...
The vendor's solicitor had to revise the contract and the lender had to be notified anyway.

However I was not given any options - accept it or pull out, like what happened when negotiating the repairs costs. Had to say it is the sellers' market, not much bargain power for the buyers

lxx

davidmcn wrote: »

If the agents are being paid a percentage then there's a (probably minor) benefit to them.

In reality you're agreeing that the property is worth 5k less than you thought, so why not just take it off the price? The only advantage I can see to the purchaser is that the "headline" price is what appears in the registers etc, so it might enhance future valuations.

Thank you davidmcn

Of course I would prefer to reduce the purchase price and do things properly, it might be the EA's idea as you said.

I was not actually given any options - accept it or pull out, like what happened when negotiating the repairs costs. Had to say it is the sellers' market, not much bargain power for the buyers