Gazumping: The Guardian on the plan to end it (nonsense) + difference between England and Scotland

SouthLondonUser

https://www.theguardian.com/money/2019/oct/25/revealed-the-plan-to-end-gazumping-in-house-sales

The article mentions, with very little detail, the trialling of a scheme whereby buyers and sellers pay a deposit as soon as an offer is accepted, and lose it if they withdraw it for an invalid reason, but get it back if their reason is valid.

That seems like complete nonsense to me!

It’s great in theory, but unfeasible in practice. Who determines what is a valid and invalid reason? Negotiating an extensive agreement that covers as many cases as possible will be a very long and expensive process: all that time and money would be better spent on the actual conveyancing. The list can never be fully exhaustive; and what if there is a disagreement? Will you be stuck in an expensive legal battle for years?

The truth is that buyers need a period to complete due diligence and check that the property is fine from a legal, structural etc standpoint – checking that is the whole point of conveyancing. So I can’t honestly see a fair way to give protection to both buyers and sellers BEFORE these checks (i.e. the conveyancing) are complete. Can you?

In fact, it would be easier to give SOME protection to the buyers. For example, an exclusivity agreement could be negotiated whereby the sellers take the property off the market and don’t negotiate with anyone else for, say, 6 weeks. Proving whether they actually negotiate with someone else would be practically impossible, but at least the sellers won’t be able to exchange during the exclusivity period. Whether sellers agree will of course depend on their bargaining power, but it’s a possibility.

I keep hearing and reading that the Scottish legal system makes it harder for both the seller and the buyer to withdraw, but I am not sure how true that is. Gazumping is not illegal in Scotland; the key difference is that there many estate agents are also solicitors, and by the rules of the Scottish Law Society, if a seller gazumps a buyer, the solicitor can no longer represent him/her. This is a slight disincentive, but not a bulletproof one: sellers can always find another agent solicitor.

As for protecting the sellers, I am not sure the Scottish system offers much more protection than the English one. “Missives” are sent after all the checks are completed, so that seems like the equivalent of the English exchange of contracts. Surely Scottish buyers don’t commit to buying a property before carrying out all kinds of structural and legal checks, do they? Or am I missing something?

davidmcn

SouthLondonUser wrote: »

As for protecting the sellers, I am not sure the Scottish system offers much more protection than the English one. “Missives” are sent after all the checks are completed, so that seems like the equivalent of the English exchange of contracts. Surely Scottish buyers don’t commit to buying a property before carrying out all kinds of structural and legal checks, do they? Or am I missing something?

Yes, you're missing a few things.

For a start, we have Home Reports produced by sellers before they market, so potential buyers can read the survey (and other information) before they even view the property - much less scope for surprises occurring weeks down the line.

The usual form of offer is conditional on there being clear searches and a marketable title exhibited before completion - so buyers don't actually need to wait to complete their due diligence before concluding a contract, they'll have escape routes if something disastrous crops up.

Usual causes for delay are the speed of getting mortgage offers issued, and buyers who need to wait for their sale missives to conclude before committing themselves to their purchase.

It is however true that people tend to overstate how early Scottish contracts are binding - it's not immediately on "acceptance" of an offer, as is often stated, just tends to be at an earlier stage than it would be in England.

SouthLondonUser

Thanks for the comments!

So the seller provides a Home Report - is that a survey + analysis of legal title? Don't buyers ever commission their own?

At what point is the agreement binding? After a buyer has seen the home report but before finishing his/her own due diligence?

What worries me is how the escape routes are defined. I'd think it is very difficult to cover all possibilities, plus there is always room for disagreement. If some major structural damage is discovered, fine, that's straightforward, but not everything will be black or white. How does this work in Scotland?

E.g. Let's say you find out the neighbour is doing his cellar and you don't want to live next to a building site for 2 years - is that a valid reason to pull out? Some buyers wouldn't mind, some buyers would. That's just one example but I hope you get the gist.

davidmcn

SouthLondonUser wrote: »

So the seller provides a Home Report - is that a survey + analysis of legal title?

Not analysis of the title, it's essentially a (slightly streamlined) Homebuyer's Report (plus the same info in a mortgage valuation format), the EPC, and a seller's questionnaire.

Don't buyers ever commission their own?

Sometimes, not usually. Might get their own specialist surveys if those are recommended (though again, sellers sometimes have those ready).

At what point is the agreement binding? After a buyer has seen the home report but before finishing his/her own due diligence?

Can be before finishing due diligence if they're content to rely on the standard contractual provisions covering searches and title information which is still to be exhibited.

What worries me is how the escape routes are defined. I'd think it is very difficult to cover all possibilities, plus there is always room for disagreement.

Very rarely. It's not usually controversial whether e.g. a statutory notice in a local search is materially adverse to the buyer or not. Incidentally, we get those from private suppliers with a 24 hour turnaround, rather than the bizarre English practice of waiting weeks for the councils to reply.

E.g. Let's say you find out the neighbour is doing his cellar and you don't want to live next to a building site for 2 years - is that a valid reason to pull out?

Depends what you mean by "doing his cellar" - if it's something which required neighbour notification then that ought to have been disclosed in the seller's questionnaire. "The neighbours have started doing building work" isn't going to be a valid reason. You can read a guide to the usual form of contract here.

As I said, in practice there often isn't a binding contract until relatively late anyway, because e.g. the buyer is still waiting for their mortgage offer, in which time they may well be in much the same position as they would be in England with their due diligence carried out.

Cakeguts

What would wanting to move and putting the house on the market but not being able to find a suitable property to move to come under? Will people be forced to moved in a certain time frame or would they be forced to buy an unsuitable house?



I can see the nanny state is alive and well.

davidmcn

Might be worth pointing out that nothing in the Scottish system (other than sellers having to make Home Reports available) is actually mandatory - how we deal with missives etc has just developed by common practice. In theory you can try negotiating your own wacky contract terms.

oldwiring

davidmcn wrote: »

Might be worth pointing out that nothing in the Scottish system (other than sellers having to make Home Reports available) is actually mandatory - how we deal with missives etc has just developed by common practice. In theory you can try negotiating your own wacky contract terms.

Sellers getting Home Reports seems a bit odd, as isn't the surveyor's duty to his client, wh paid him and not any other party. How is that problem dealt with under scottish law?

davidmcn

oldwiring wrote: »

Sellers getting Home Reports seems a bit odd, as isn't the surveyor's duty to his client, wh paid him and not any other party. How is that problem dealt with under scottish law?

They agree that their survey can be relied upon by the buyer (and the buyer's lender). Just as they could in England (and as happens in other circumstances, just not residential purchases typically).

Skibunny40

The Scottish system has become much less binding over the years. When I first started looking at a flat to buy in Scotland (more years ago than I care to remember!) you were pretty much "locked in" to buying a property if your offer was accepted, so you made damn sure you'd done ALL your research and paid for your own survey before offering (via a solicitor who guided you through it and effectively acted as a Phil and Kirsty on your behalf!). However, this was expensive if the property went to closing date and your offer wasn't the highest.
No-one with any sense put an offer in on a next home if they didn't have an offer on their first home, otherwise you could end up with the horror that was a "bridging" mortgage.
Not quite sure if the rules/laws around home buying have changed (other than the Home Report) but there definitely isn't the same "locked in" scenario after making an offer now...I'm not convinced that's a good thing!

fewgroats

The right not to be conned=Nanny state?

SouthLondonUser

A system which forces the seller to disclose more information which is verified by a third party is a good thing. I would probably commission my own report but having more information earlier is a good thing.

With the English system, it can happen that the seller verbally confirms x y z and only later in the conveyancing process, after costs have already been incurred, the buyer realises it's not true. This happened to me once with a build over agreement; the seller had sworn there was one, turns out there wasn't, and without it the water company could potentially demolish the extension in order to access the public sewer.

A system which forces solicitor not to represent sellers who gazump is also no bad thing!

The Scots, unlike their cousins farther South, have realised that the middle ages are over, and have got rid of the aberration which is leasehold. They also don't have chancel repair liability and a number of other oddities which make the rest of the world scratch their head in disbelief at the English system.