Asked to exchange 95 days before completion

davidmcn

GDB2222 wrote: »

What on Earth makes you think your insurance covers against the house being hit by a deep frozen stowaway?

Because it's a fairly standard risk? My buildings insurance includes cover for "Collision involving...aircraft including flying objects and anything falling from them".

TBagpuss

OK, the risks you would be traking are:

1. Your mortgage offer. You've said that it is valid through to april, but the lender could pull the offer if there were changes to your situation,. For instance, if you lost your job, or were told you were at risk of redundancy, you would need to tell the lender and they might withdraw or change your mortgage offer
They may also do a fresh credit check before completion - if your record had changed (including if you have taken on any extra borrowing such as increased credit card debt) in the mean time, they could withdraw or reduce the offer.
The risks are probably pretty low, but obviously the chance that something may happen is greater if there is a 3 month gap than if the gap is 2 weeks !

2. Condition of the property. The sellers have to have the property over on completion in the same condition it was in at exchange, however, if they don't, you would then have the hassle of both proving it and recovering any costs from them. Again, more can happen in 3 months than if the gap is shorter. You could of course ensure that you visit the property the day before exchange, and check and document that things are working

3. Insurance. Normally you insure the property from exchange. It is more complicated to do this for a longer period and there will be extra cost, so you might want to negotiate for the seller to cover the costs, if you do agree the long gap, so you are not left out of pocket.

The other options of course would be for you to withdraw and pick a different property, or for you to decline to agree to the delay and suggest that you complete sooner, and that the sellers find temporary accommodation elsewhere in the mean time. Or that you agree to the April completion sate but decline to exchange until closer to the time, and leave the sellers to negotiate with the developer .. who may be more or less willing to budge depending on how easy they have found it to sell the properties on the development...

GDB2222

davidmcn wrote: »

Because it's a fairly standard risk? My buildings insurance includes cover for "Collision involving...aircraft including flying objects and anything falling from them".

I take that back then. I’ll have to check my policy.

What I really meant is that policies are not all risks, so there are still risks that we self-insure without giving a moment’s thought.

movilogo

You should always minimize time between exchange and completion. By exchange you are legally bound to purchase the property.

The gap should not be more than 1 week under most cases. 90 days too long. If you lose job or other circumstances change, lender may refuse mortgage fund release and then buyer will be in deep trouble.

SmashedAvacado

SouthLondonUser wrote: »

True, BUT IMHO it's not worth the risk.

Say you agree the seller will continue to insure the property between exchange and completion, then doesn't - e.g. misses a monthly payment on the insurance which automatically voids the policy. Then something happens (a stowaway falls from the sky, a flood, whatever) while the house isn't insured. Then what? Sure, you can sue the seller, but how much is that going to cost you, and what are the odds of recovering how much?

To me it's not worth the risk. Sure, we are talking about veeery low-probability risks here, but the whole point of insurance is to get cover against low probability risks.

I wouldn't consider it, but to each their own.

the position would be that the seller would continue to insure
and the seller's obligation is to hand the property to you at completion in the same condition that it was at at exchange of contracts
so in your scenario your option would be to walk away
that's actually a better position than you would be under if you had taken risk, because in that situation you would be obliged to complete the purchase of the destroyed property and you would need to deal with your insurers about putting it right. i suspect 99% of people wouldnt want the hassle of buying a destroyed house albeit with the insurance proceeds .

But each to their own....

davidmcn

movilogo wrote: »

By exchange you are legally bound to purchase the property.

And the vendor is legally bound to sell it.

The gap should not be more than 1 week under most cases. 90 days too long.

Some certainty that the transaction will actually happen (and when) is generally helpful for people who need to book removals, time off work, etc. If everything is agreed now, why wait c. 3 months and risk the other party getting cold feet, messing around with gazump/undering or other last-minute renegotiations etc.

sal_III

The risks of long period between exchange and completion are routinely faced by 1000s of buyers of new builds and no one bats an eye.

To me it's daft to lose a place you like and got an offer accepted, just because of the above risks.

The point is that this is likely a non-negotiable condition of the sale, if the vendor needs to exchange on the new build. They would be mad to exchange on their purchase, without exchanging on their sale even if for some reason the Developer is happy to allow it.

SouthLondonUser

SmashedAvacado wrote: »

the position would be that the seller would continue to insure
and the seller's obligation is to hand the property to you at completion in the same condition that it was at at exchange of contracts
so in your scenario your option would be to walk away
that's actually a better position than you would be under if you had taken risk,

Well, that depends on the damage. If it is, say, a £20k damage, the insurance would cover most of it and I am keen on the property, I might not walk away.

If the property gets blown up entirely and needs to be rebuilt, it's a very different story.

SouthLondonUser

sal_III wrote: »

The risks of long period between exchange and completion are routinely faced by 1000s of buyers of new builds and no one bats an eye.

Lots of people do stupid things without realising - this doesn't mean we should, too.

What not many people realise is that most mortgage offers are not fully binding - the lender almost always has a get out of jail card. There was even a thread here about this some months ago, can't find it now. Most mortgage offers have some language whereby the lender can pull out between exchange and completion if the value of the house changes, the circumstances of the borrower change, etc.

So there is an asymmetry because the buyer is 100% obliged to buy from the moment of exchange, but the lender is not 100% obliged to lend, and most sale contracts are not conditional on the mortgage still being there.

The most common risk is probably losing your job between exchange and completion.

There also exists the risk that the bank may change its criteria and decide it doesn't like the property any more; it is very very very unlikely but not impossible.

My personal view is to either minimise the time between exchange and completion to 1 or 2 weeks, or to negotiate a sale contract that is conditional on the mortgage offer still being there. I would basically tell the seller: I am willing to wait up to 2 weeks and to bear the risk that the lender changes its mind over those 2 weeks (it is such a short time period I find the risk negligible). If YOU want me to wait longer, I cannot bear that risk.

You are of course welcome to tell me I am pedantic and paranoid and you would never sell a property to me because most buyers don't think of these things.

SouthLondonUser

SmashedAvacado wrote: »

the position would be that the seller would continue to insure
and the seller's obligation is to hand the property to you at completion in the same condition that it was at at exchange of contracts

The Law Society, standard conditions of sale, 5th version April 2011
https://www.lawsociety.org.uk/support-services/advice/articles/standard-conditions-of-sale/

"The property is at the risk of the buyer from the date of the contract"
The seller is under no obligation to the buyer to insure the property unless:
(a) the contract provides that a policy effected by or for the seller and insuring the
property or any part of it against liability for loss or damage is to continue in force, or [...]

So basically you can negotiate that the seller will insure it, but you need to negotiate that explicitly as that's not the standard term (at least in England, no idea about elsewhere).

If you are really keen on it, you might want to discuss with your solicitor about inspecting the property say the day before completion to verify it's in the same conditions, but the seller may well tell you to get lost as that would be far from standard.