Property Page

Moving Home Made Easy

Buying and selling your home: a guide through the maze.
The need for written contracts.
Buying at auction.
Instructing an agent to market your home.
When is the commission due?
Your sale: what we will do.
Your purchase: what we will do.

Buying and selling your home: a guide through the maze

When you are selling or buying your home you need to keep a cool head, and be aware of the legal implications of what you are doing. There are traps for the unwary.

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The need for written contracts

Although you may have agreed in principle to buy or sell before you contact us, you must understand that the agreement is not legally binding until it has been put into a written contract, and that contract has been signed by you and the other party.

It is for the seller's lawyers to draw up the sale contract. The usual practice is for the contract to be prepared in duplicate, so that the seller and the buyer each sign an identical copy. When both sides are ready to commit themselves legally to the transaction, their lawyers will exchange the contracts so that the seller has the copy signed by the buyer and the buyer has the copy signed by the seller. This process is called 'exchange of contracts' or simply 'exchange'. It defines when the parties are legally bound by their agreement.

Even when you have signed your copy of the contract, the agreement will not become legally binding until your signed copy of the contract has been exchanged for the copy signed by the other party.

On exchange of contracts, the buyer normally pays a deposit. The contract will provide for a 10% deposit, although it is usually possible tot negotiate a deposit of 5% on the basis that if the buyer fails to complete on the agreed date, the balance of the 10% deposit is immediately due.

The space on the contract for the 'completion date' is left blank until contracts are exchanged, when this date is agreed, and is written into both parts of the contract. On the completion date the parties 'complete' their obligations under the contract: the seller must move out of the house ('give vacant possession' in the jargon), and deliver the keys and the title deeds to the buyer; in return, the buyer must pay the balance of the purchase money.

If either the buyer or the seller fails to 'complete', or do what they should do, on the completion date, the defaulting party is liable to pay the innocent party interest under the contract on the balance of the purchase money. The rate of interest is usually referred to as the 'contract rate' in the contract; it is expressed as a clearing bank's base rate plus a set margin, of say 4 or 5 percentage points.

This legal requirements for written contracts opens the way to practices such as 'guzumping' or 'gazundering'. The government has recently published proposals to change the law to require sellers to produce a seller's pack, including a survey when the property is put on the market. It is the element of a seller's survey that is new and that will be controversial. We will have to wait and see what happens. Although is is legally possible to prevent 'gazumping' by entering into a lock-out agreement with the seller, to give the buyer an element of exclusivity, this is still rare in the house market, so that agreements of this kind have not become standardised, and high street practitioners are relatively unfamiliar with them. Even where the parties are willing to enter into this kind of agreement, the need for individual negotiation is likely to increase costs.

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Buying at auction

If you buy a house or flat at an auction a binding contract is created as soon as the hammer falls. The successful bidder is required to sign a written contract immediately, and to pay a deposit to the auctioneers. The sale particulars will specify a completion date, typically 14 or 28 days ahead. For this reason you should not bid at auction unless you have made all your financial arrangements beforehand. The seller will not usually make local search results available, so you will need to do all your investigations before bidding.

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Instructing an agent to market your home

If you are going to market your home through a professional estate agent, you need to be alert to the difference between 'sole agency' and 'sole selling rights'. You also need to understand when the agents' commission is due, and whether the quoted fee includes VAT, advertising, valuation, and expenses or whether these are to be added to the bill.

If you agree 'sole agency' terms with the estate agent when you are not able to appoint another agent to sell the property for you for as long as the 'sole agency' lasts. If you do then you are at risk of having to pay two commissions. However, this does not prevent you from selling the house privately, unless the agents had introduced the buyer to you previously.

The phrase 'sole selling agent' is sometime used. This is the same as a 'sole agency', and must be carefully distinguished from 'sole right to sell' or 'sole selling rights'.

If you agree 'sole selling rights' then you are prohibited from arranging a private sale yourself, at least for so long as the agreement lasts. This is much more restrictive than a 'sole agency' arrangement.

Estate agents are required by law to tell you in writing about the terms of the agreement that you have with them. This includes an explanation of what the terms 'sole agency' and 'sole selling rights' mean.

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When is the commission due?

The estate agents agreement will normally say that the fee becomes due as soon as the buyer enters into a binding contract (see above). This means that the commission is still due even though the contract is terminated between exchange and completion, or completion fails to take place. In practice the agents will expect the commission to be paid on completion of the sale, normally by the solicitor or licensed conveyancer acting for the seller.

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Your sale: what we will do

This is an outline of the work that we will do on your behalf when you instruct us to handle the legal side of your sale. Although it is not an exhaustive list, it summarises the more important steps that we will undertake on your behalf.

Obtain the title deeds from your mortgage lender.
Obtain office copies of the Land Register entries from the Land Registry.
Draw up the draft contract and send it to the buyer's lawyers with the completed property information form and fixtures, fittings and contents list.
Explain the contract to you when the buyers are ready to exchange contracts.
Exchange contracts with the buyer's lawyers and agree on your behalf a suitable completion date,
Receive the deposit from the buyer's lawyers when contracts are exchanged, and either hold it in our clients account until completion, or use it towards the deposit on your purchase.
Ask your mortgage lenders for a redemption statement, showing the amount required to redeem your mortgage on the agreed completion date.
Send you a detailed financial statement.
Arrange for you to sign the transfer deed that will formally transfer the property to the buyer on completion. This deed is drawn up by the buyer's solicitors. We will hold it on our file until we receive the balance of the purchase money from the buyer's lawyers on completion.
Receive the balance of the purchase money and use it to.
Pay off your mortgage.
Pay the selling agent's commission.
Pay our own fees and the disbursements that we have incurred on your behalf. And send the balance to you, either by cheque, or direct to your nominated bank account.
Send the title deeds to the buyer's lawyers

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Your purchase: what we will do

This is an outline of the work that we will do on your behalf when you instruct us to handle the legal side of your purchase. Although it is not an exhaustive list, it summarises the more important steps that we will undertake on your behalf.

Receive the draft contract from the seller's lawyers and check that the seller has a good right to sell the property.
Check that there are no restrictions on the title that would affect your use of the property or make it more difficult for you to sell.
Check that any planning consents have been obtained for any alterations to the property.
Make searches and enquiries of the local authority.
Report to you on our investigations.
Receive mortgage instructions from your mortgage lender and report to you on them.
Explain the contract to you.
Exchange contracts with the seller's lawyers and agree a suitable completion date on your behalf.
Send you a detailed financial statement, and ask you for the balance due from you to complete the purchase. The money that you send us will be paid into our clients account, and only used for the purposes of your purchase.
Draw up the transfer that will formally transfer ownership to you and send it to the seller's lawyers.
On completion, receive the mortgage money from your mortgage lender, and use it to complete your purchase.
Use the money that you have supplied us to pay stamp duty and Land Registry fees, and our own costs.
Send the transfer to HM Land Registry to register you as the new owner.
Receive the Charge certificate from HM Land Registry and send it to your mortgage lenders.

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