Purchase about to fall through due to misrepresentation

AJM1984

Hi all! (You'll all get sick of me at this rate!)

Hope everyone is having a lovely Friday?

Down to business! Right, our house purchase has stalled just before exchange was due. I'd love some impartial advice, please. Maybe somebody has been through something similar?

House listed at 140k, three bedroom. 
Offer accepted at 135k.
Everything proceeds as planned.
All conveyancing done and valuations booked. (Noted some missing information but happy to proceed knowing a comprehensive Homebuyer's survey would catch anything untoward.) 
Homebuyer's report and Mortgage valuation done together. We agree to absorb cost of chimney repairs and other work without renegotiating price. However, confirmation of red flag from our solicitor.
Mortgage approved awaiting valuation confirmation their end. 
Mortgage offer received but for 5k under the agreed price as one 'bedroom' isn't legally allowed to be a bedroom. This was the aforementioned red flag. It's, technically, fancy storage space. To stress, it hasn't been undervalued by our lender. They've valued it correctly. The EA valued it incorrectly as they didn't check for building regs because, and I quote, the room has a door therefore it is legally a bedroom and can be marketed as such. Not sure where to go with that...

Now, we don't care about the extra 'bedroom'. We don't need it. We were hoping that a valuation with our lender would still be in-line with the agreed purchase price because we'd already reduced it from asking price but we were clearly naive.
We can't magic up 5k quickly without some considerable risk and, really, we don't want to. We were at 95% LTV, so no wiggle room. We also need to retain some funds for the necessary repairs. Seller won't reduce by 5k because she was two weeks away from exchanging on her dream house which the EA claims she would lose overnight if the chain broke and it was relisted. EA seems to be dealing with both other purchases/sales within the chain.

Am I right in assuming that as a FTB, renting, with mortgage approval, we're in the stronger position here?
Do people think this is a waiting game or a walking game? We do absolutely love the house but paying an extra 5k out of pocket and above market value sounds a bit... umm... dumb? We like and respect the sellers and we feel sympathy for them that they proceeded with a purchase in good faith that their EA had listed their house correctly but, in reality, none of us should be having to absorb this sudden 5k pitfall. 

Thoughts, wonderful people?

DullGreyGuy

At this point your only strength is being chain free as their option of remarketing the property to find another buyer isn't likely to find a quicker solution. 

It's a negotiation, who likes the property they are wanting to buy most and who's willing to walk away for the sake of £5k. 

BarelySentientAI

AJM1984 said:

The EA valued it incorrectly as they didn't check for building regs because, and I quote, the room has a door therefore it is legally a bedroom and can be marketed as such. 

The EA is essentially right on this point.  There aren't really any legal descriptions of what is/isn't a "bedroom" for the purposes of marketing.  I could stick a mattress in a cupboard and market it as an extra bedroom.

AJM1984 said:

Mortgage offer received but for 5k under the agreed price as one 'bedroom' isn't legally allowed to be a bedroom. This was the aforementioned red flag. It's, technically, fancy storage space. To stress, it hasn't been undervalued by our lender. They've valued it correctly.

No, it's been undervalued by the lender.  There is no "correct" or "incorrect" value.

What there is, is a room without building regulations.  Do you want to buy a house where one room might or might not comply with building regulations, and if you do, do you think it is now worth any less than it was before?

AJM1984 said:

Am I right in assuming that as a FTB, renting, with mortgage approval, we're in the stronger position here?

Not really.  The chain works or the chain doesn't work.

AJM1984

BarelySentientAI said:

AJM1984 said:

The EA valued it incorrectly as they didn't check for building regs because, and I quote, the room has a door therefore it is legally a bedroom and can be marketed as such. 

The EA is essentially right on this point.  There aren't really any legal descriptions of what is/isn't a "bedroom" for the purposes of marketing.  I could stick a mattress in a cupboard and market it as an extra bedroom.

AJM1984 said:

Mortgage offer received but for 5k under the agreed price as one 'bedroom' isn't legally allowed to be a bedroom. This was the aforementioned red flag. It's, technically, fancy storage space. To stress, it hasn't been undervalued by our lender. They've valued it correctly.

No, it's been undervalued by the lender.  There is no "correct" or "incorrect" value.

What there is, is a room without building regulations.  Do you want to buy a house where one room might or might not comply with building regulations, and if you do, do you think it is now worth any less than it was before?

AJM1984 said:

Am I right in assuming that as a FTB, renting, with mortgage approval, we're in the stronger position here?

Not really.  The chain works or the chain doesn't work.

Ah, OK. Thanks. It was my understanding that without building regs or fire safety it couldn't be classed as habitable space from a legal standpoint. So, do I approach the lender and argue that because there's no legal definition of what is and isn't classed as a bedroom, they need to value it again as a three bedroom and not two?

lisyloo

You may not mind about the technicality but future buyers might.
personally I'd want the seller to pick this up, but it's probably unrealistic to expect that.
So you either walk or negotiate something like 50/50.
it's down to who wants it the most.

The seller wanting their dream home sounds like they want it to happen. What's their reason for not dropping?

RHemmings

AJM1984 said:

We can't magic up 5k quickly without some considerable risk and, really, we don't want to. We were at 95% LTV, so no wiggle room. We also need to retain some funds for the necessary repairs. Seller won't reduce by 5k because she was two weeks away from exchanging on her dream house which the EA claims she would lose overnight if the chain broke and it was relisted. EA seems to be dealing with both other purchases/sales within the chain.

Why would the offer being reduced by £5k prevent the seller getting her dream home, but you walking away wouldn't? 

To me that paragraph makes me think that it's you that's in the stronger position. And, if they marketed the property as having one more bedroom than it legally is allowed to be described as, then morally I think you are entirely justified in reducing your offer. In fact, I would think that reducing by only £5k would be generous in these circumstances. 

Van_Girl

Is this room just a normal bedroom, or is it converted e.g. attic, or garage? Because if it has been converted without meeting building regs, then it will not be classified as a habitable room. In which case, the mortgage valuer would be right and the EA would be wrong. Most EA's are careful about this stuff and refer to these conversions as office/storage etc. Then people choose to use them as bedrooms if they wish.

Given that the seller really needs to sell to buy her dream property - I would tell her you're reducing your offer and that's the end of it. But you have to be prepared to lose the house. It sounds like you can't find the extra £5k anyway. 

Edit to say, the EA didn't value it incorrectly, they valued it based on what they thought someone would pay for it. That's what they do

lisyloo

Is this your dream home, one of a kind?
Why not ask for £5K reduction or you walk? - put a big more nicely i.e. sorry, but you just cannot get it.

CKhalvashi

We went through this with a landlord.

A bedroom for LHA purposes was broadly in line with a bedroom and radiator being present. The council agreed with this interpretation.

Whether a bank will for mortgage purposes will be up to them and depending on the exact circumstances, however any work done in that particular case was outside the scope of building control regulations for reasons I can't remember.

AJM1984

lisyloo said:

You may not mind about the technicality but future buyers might.
personally I'd want the seller to pick this up, but it's probably unrealistic to expect that.
So you either walk or negotiate something like 50/50.
it's down to who wants it the most.

The seller wanting their dream home sounds like they want it to happen. What's their reason for not dropping?

We have no intention to resell. We're older than most FTB and just want somewhere to settle down. Seems like a tough ask recently lol.

The seller insists that she can't lose 5k on our transaction because she'll then be short 5k for the seller above her. If we drop out it's messy for her and the chain above. Apparently she was crying and screaming on the phone to the EA. Makes me feel awful! We really do like the house but not sure we want an extra 5k commitment on top of repairs. I'm browsing other houses in case. Yes, we would very much have liked to settle in that house but we're very used to just accepting that things fail and we have to move on. We just didn't want that to be the case in this instance.

Van_Girl said:

Is this room just a normal bedroom, or is it converted e.g. attic, or garage? Because if it has been converted without meeting building regs, then it will not be classified as a habitable room. In which case, the mortgage valuer would be right and the EA would be wrong. Most EA's are careful about this stuff and refer to these conversions as office/storage etc. Then people choose to use them as bedrooms if they wish.

Given that the seller really needs to sell to buy her dream property - I would tell her you're reducing your offer and that's the end of it. But you have to be prepared to lose the house. It sounds like you can't find the extra £5k anyway. 

Edit to say, the EA didn't value it incorrectly, they valued it based on what they thought someone would pay for it. That's what they do

It's a loft conversion. Every house for sale recently on the same road has one but is marketed as 2 bedroom by other EA. Around the valuation mark we have received from our lender.

AJM1984

RHemmings said:

AJM1984 said:

We can't magic up 5k quickly without some considerable risk and, really, we don't want to. We were at 95% LTV, so no wiggle room. We also need to retain some funds for the necessary repairs. Seller won't reduce by 5k because she was two weeks away from exchanging on her dream house which the EA claims she would lose overnight if the chain broke and it was relisted. EA seems to be dealing with both other purchases/sales within the chain.

Why would the offer being reduced by £5k prevent the seller getting her dream home, but you walking away wouldn't? 

To me that paragraph makes me think that it's you that's in the stronger position. And, if they marketed the property as having one more bedroom than it legally is allowed to be described as, then morally I think you are entirely justified in reducing your offer. In fact, I would think that reducing by only £5k would be generous in these circumstances. 

I don't know about that tbh. The EA says other lenders and solicitors would happily class it as three bedroom despite no regs. Maybe she thinks the top of the chain can push back exchange giving my seller more time to market her house again for the same price we agreed? The EA seems to give out the general vibe that we're the idiots about to miss out. Hence me needing some impartial feedback.