The government’s review into ways of speeding up the house buying and selling process has already resulted in predictable responses from the usual pundits – all somewhat reminiscent of Groundhog Day! What is wrong with their apparently simple solutions?
1.‘Reservation agreements’ – where the buyer and seller each place a deposit, which would be forfeited in the event of either withdrawing from the deal.
At first sight, this sounds eminently sensible; however, the devil is in the detail!
- If it is going to be meaningful, such a deposit would have to be a substantial sum (one would imagine several thousand pounds); but under what circumstances would it be surrendered?
- If the mortgage valuation failed to match the sale figure agreed?
- If the survey revealed a substantial (and undisclosed) structural problem?
- If a Building Regs Completion Certificate is missing?
In our experience of various sales involving non-refundable deposits, it can take as long for the lawyers to agree this sort of detail as it can for them to reach exchange of contracts!
2. A variant of HIPs (‘Home Information Packs’)
HIPs were introduced in 2007 as a means of speeding the sale process; they included information on Title, the Property Information Form, a ‘sale statement’, the Energy Performance Certificate, Local Authority and Drainage searches, a ‘Home Condition Report’ (a vendor’s survey undertaken by a recognised ‘Home Inspector’), ‘Home Use’ and ‘Home contents’ forms and a legal summary.
- It was an offence to openly offer a property for sale until the HIP was available.
- The cost (several £100’s, sometimes over £1,000) and delay in obtaining HIPs were largely blamed for a massive reduction in instructions; HIPs were largely held to blame for the 2007 housing crisis and they were suspended in 2010.
- Whilst much of the contents of a HIP was easily assembled and to be applauded, the cost and delay of obtaining the Home Condition Report and Searches (and the obligation for these to be updated every three months) deterred so many from selling their property (especially when they were only doing so in order to secure the purchase of a particular property)
Plus ca change……
3. ‘The Scottish system’ – where an agreement is held to be binding from acceptance of an offer.
Seen to offer the advantage of making the sale agreement binding at a much earlier stage than the English system. However:
- A house cannot be sold in Scotland until a ‘Home Condition Report’ is available (i.e. a version of a HIP). As with HIPs, this ‘tick box’ report was totally inadequate when it came to larger properties – buyers preferring a full Building Survey
- Just as in England, a buyer needing a more detailed survey or a mortgage offer need to obtain these before they enter into the contract (‘missives’) – as, other than in certain circumstances, this is held to be binding (a substantial cost in a system where most houses are sold by closed tender – ‘best offers’.
- After a ‘best offer’ has been agreed, gazumping – whilst very rare – does happen (although Scottish solicitors are barred from dealing if this happens)
- The buyer’s solicitor may not be able to agree an ‘unconditional’ contract until a mortgage offer has been made (and, in England, this usually takes as long as pre-contract enquiries). Even if a mortgage is not involved,
The system therefore means that buyers, when entering into the agreement, have to be in a position to exchange contracts. This implies that:
- If their current house has not sold, they have to be prepared to ‘bridge’ the purchase price
- If they sell first, they have to be prepared to rent until there is a property to purchase
The vast majority of the English market is made up of buyers and sellers trying to co-ordinate their sale and purchase (often resulting in long ‘chains’ of transactions) – there is an extreme reluctance to rent in between sale and purchase. Adopting the Scottish system would represent a substantial culture shock and, inevitably, deter a large number of people from selling, without the certainty that they will find the right property to purchase by doing so.