Protection for deposit between exchange and completion

confusedhomebuyer102

Hello MSE forum,

newbie here.  We are trying to sell our flat and it turns out our buyer is a  buy-to-let landlord.  We are trying to upgrade from our flat to house :-), so we are in a chain (buyer>our flat>house we want).  There is a big difference in price as we are scaling up. 

Our buyer has been very slow and their solicitor has been mistaken on interpretation of documents multiple times.  They are generally being intransigent and only prepared to put down a 5% deposit between exchange and completion.We are in discussions with the people we are buying froms solicitor, and trying to aim for 5% deposit similarly, although we could squeeze every penny and get to 10%.  However given how useless our buyer has been (and we judge deliberately slow and uncompassionate) we think there is quite a reasonable chance compared to normal that they will pull out between exchange and completion (we are fingers xd nearing these dates).

Is there some way to get insurance against this? I googled it but couldn't see anything.  This feels exactly what insurance is designed for (paying something to do with low probability high impact events).

As if our buyer pulls out after exchange they lose £20k for failure to complete, but we would lose much more than 20k, as our deposit is commensurately larger, so we could stand to lose say 60k.  So the buyer's deposit doesn't really help us to derisk, as essentially them losing 20k is bad, but they can cope with, us losing 60k would be a disaster.  

I only ask, as in a falling house price market, the buyer could choose not to go ahead, and also I won't go into a full rant here, but they have not been considerate or professional throughout this process , so are we judge higher risk.  They also have the most power in the chain, as they are now the rate determining step. 

An earlier thread (link) suggested this was an unlikely risk, but would still value any advice on derisking?

https://forums.moneysavingexpert.com/discussion/3951051/protection-for-deposit-between-exchange-and-completion/p1

thanks

confusedhousebuyer102

greatcrested

The usual reason for a buyer to request a 5% deposit in place of the usual 10% is that they are in turn selling, and the 10% they are receiving is less than the 10% needed for their purchase.

In this case, a business person is your buyer. Either he is not managing his business well, with sufficient cash flow, or he is simply taking the P. I would refuse to accept 5%. Simply instruct your solicitor of that decision.

I doubt he will pull out between Exchange and Completion though. It's not just the deposit he'd be liable for - you could claim any losses you, or your seller, incur. A BTL buyer will not simply throw money away for no good reason. But he might gazump later when you are so commited to your sale and purchase that he can get a bargain....

Might be worth setting a deadline and re-marketing if it's not met.

Mutton_Geoff

confusedhomebuyer102 said:

if our buyer pulls out after exchange they lose £20k for failure to complete

No they don't. I suggest you read up on contract law or ask your solicitor. The amount of deposit is meaningless in the scheme of things. Breach of contract is much more expensive for your buyer. I'd be worried about last minute gazundering, not the amount of deposit.

confusedhomebuyer102

Thanks @Mutton_Geoff really helpful.  Will talk to our solicitors, it sounds like our buyer is on the hook for more than the deposit (if they sign the exchange).  Which is good news :-) . 

Thanks also @greatcrested appreciate the advice from an outside perspective, as I have definitely been dealing with this for too long. 

grumiofoundation

 Why not exchange/complete simultaneously? 

eddddy

As others say, it's strange that a BTL investor is only offering a 5% deposit.  Has the buyer offered any explanation for this?

This is probably over-thinking things, but I guess a couple of things that might ring alarm bells...

• Is your property being bought under a company name? If so, it might be a company with no assets, so if they fail to complete, they'll be no funds to pay damages.

• Is the buyer not resident in the UK and/or they don't have any assets in the UK? Again it may be difficult to get damages, if they fail to complete.

confusedhomebuyer102

Thanks @eddddy - helpful questions to ask. We'll look into those :-)

and thanks @grumiofoundation - that is another smart way to avoid the problem between exchange and completion - no gap between the two!  Good lateral thinking.  

thanks all for taking the time to offer help and advice, nothing more needed from me :-:smile:

hb2

Some/many solicitors are very keen on same day exchange/completion at the moment anyway as it prevents any last minute covid-related problems (one party being unable to move due to the need to quarantine/self isolate etc).

TN1984

I would be very keen to know personally why they only want to put down 5%. They are not getting a 95% mortgage on a BTL, so they must have more than 5% otherwise they cannot proceed.