How to Buy a Luxury Property in London - Part 3: Completing the Transaction

4. Transaction Problems

From the time the first offer is made until the exchange of contracts certain transaction problems may occur that could result in you losing the property. Here is a list of some of the most common problems and the best way to avoid them:

Gazumping

Gazumping occurs when a seller accepts another offer having already accepted yours, causing your to lose the sale. If gazumping happens to you there is little you can do, but there are some ways in which you can minimize the risk of it taking place:

• Help speed up the sale - the faster it is, the less opportunity there is for the seller to pull out.
• Keep in regular contact with the seller’s agent - tell them when you have completed the survey and received a formal mortgage offer. This way they can be sure that the sale is progressing and are less likely to be tempted to consider any other offers.
• Make a pre-contract deposit agreement. This involves both parties paying a deposit of 1.5% of the agreed purchase price to a stakeholder and signing an agreement stating that contracts will be exchanged within four weeks (or another agreed period). If one side withdraws from the sale, the other party receives both deposits. If you are a gazumped buyer you therefore receive some compensation. This is not a water-tight precaution as either party can pull out if they are willing to lose the deposit, but it definitely reduces the probability.
• Draw up an exclusivity agreement with the seller after your offer has been accepted. In return for a fee you receive exclusive rights to the house as long as contracts are exchanged within a certain period. Few people make such an agreement as it involves hiring a solicitor but it is worth considering.
• Insist that the house be taken off the market once your offer has been accepted. Check that the board outside the house has a ‘Sold’ sign on it, and contact the agent if it does not.
• If possible choose a seller whose agent has a policy on gazumping. Some agents insist that the seller signs an agreement to turn down any offers after one has been accepted.
• If a seller agrees to your offer but later changes the terms ask for something greater in exchange. For example, if you agree a certain price with a normal completion and then the seller asks for an extended completion you could ask to pay less. They may or may not agree to the reduction, but it will prevent any further ‘chipping’ in the negotiation.

If you are gazumped, emphasise to the agent and seller how keen you are on the property. If the buyer whose offer they have accepted pulls out, they may contact you to ask if you are still interested.

The Chain Situation

A chain is created when you cannot complete the purchase of the house you are buying until you have sold your own house, and the buyer of your house cannot complete until they have sold their house, and so on. This may create a long line of buyers and sellers and if just one person pulls out of a sale or is gazumped the whole process may be delayed. If you are not part of a chain the seller is more likely to accept your offer instead of somebody else’s as there is less likelihood of the sale being delayed.

Contract Races

When there are two or prospective buyers for a house the seller may decide to send out contracts to more than one person thus creating a race to send the deposit and signed contract. This usually occurs when there are rising house prices and a shortage of properties. Be wary of contract races unless you have a very good chance of winning; even though solicitors are legally required to tell you that you are in a race, there are costs to be paid during the period before the exchange of contracts. Try to agree on a forfeited amount with your solicitor which will be applicable if you lose the property.

Photo Credit: Adelto

5. Exchange of Contracts

When both parties are satisfied and everything is agreed the contracts can be exchanged. Once the contracts are signed you are legally bound to carry out the transaction and you also no longer need to worry about gazumping. At this point you will also need to hand over a non-refundable deposit (usually 5-10%) as security to the seller that you will not pull out of the sale. Your solicitor will draw up a transfer document to transfer the title of the property to you which is signed by both parties. If you have organized a mortgage your solicitor will also finalize the necessary documentation with your lender to make sure that the money will be available on the date of completion.

There are several things to do during the run up to the completion date. You will need to pay Stamp Duty and Land Registry fees as well as any outstanding costs and you need to begin to make arrangements for the move. It is during this period that your solicitor will carry out the final searches or enquiries and make sure that there are no last minute disputes. You should also use this time to ensure that any requested repairs have been made and that all of the terms of the contract have been fulfilled.

6. Completion

The day of completion is when you receive the keys to the property and legally become the new owner. The final balance of the purchase need to be paid through your solicitor and the seller must vacate the property. You will also receive the signed transfer document along with the title deeds while your solicitor will carry out the final administration such as registering the transfer of ownership at the Land Registry. Once all of the loose ends are tied up you will need to pay any outstanding administration costs. You are now able to move into your new exclusive London home.

For a full breakdown of the costs and fees involved in buying a luxury property in London please read Part 4: The Costs

Have you had a positive or negative experience when buying luxury property in London? Did you encounter a problem that we haven’t mentioned? Do you have any advice for someone looking to buy?