The property market in London, for example, remains strong – although difficult economic times could change that. For the time being though, buyers need some rules to operate by, and the authors here explain what they should be.
The following article comes from Farrer & Co, the London-based law firm, and addresses the sort of tactics buyers should adopt in a hot property market. It is a matter of debate how “hot” certain residential markets will remain if there’s a recession – an event which organisations such as UBS have predicted is inevitable in the UK at some point.
A decade or more of ultra-loose central bank monetary policy – now starting to reverse – may have given some property analysts the idea that real estate prices will remain strong indefinitely. With that out of the way, however, there’s no doubt that property prices in certain cities around the world remain strong. So how best to operate?
The authors are Annabel Dean, partner and Adam Fletcher, associate at Farrer & Co. The editors of this news service are pleased to share these views and invite replies. The usual disclaimers apply to views of guest contributors. Email firstname.lastname@example.org
In a competitive market, buyers need to make themselves as attractive as possible. This means taking steps prior to making an offer and during negotiation, as well as ensuring that the deal maintains momentum from the day it is agreed.
Empowering your search
A buying agent is almost essential in the current prime central London market. So many properties transact off market that those without buying agents are unlikely to have access to the full range of properties available. A buying agent can also help to negotiate the best deal.
Am I ready?
A seller will always be pleased to hear that their purchaser has already invested time to prepare for their purchase.
If a buyer is actively looking for a property and intends to purchase with finance, having an early conversation with their lender is key. Banks’ internal processes understandably take time, so clearing as many of those hurdles prior to making an offer will mean that you are well-positioned. A related point is availability of funds. Buyers should ensure that they have deposit funds (and any non-mortgage funds for the balance) onshore and in the correct currency.
Hiring a good solicitor and clearing their onboarding process is something else a buyer can do prior to making an offer. Recent events have meant that firms are tightening up their compliance processes, and they are more stringent than ever. Ensuring that you have completed all the onboarding requirements with your solicitor and have signed their terms of engagement will mean that your solicitor can spend the early days of a transaction actually progressing the purchase.
Finally, ensure that you have an excellent surveyor who will be able inspect promptly and can report swiftly. Alternatively, ensure that your solicitor has a good network of surveyor contacts who can procure a swift and thorough survey report on your behalf. Having a full buying team in place from the outset demonstrates intent and commitment, and it will ultimately make any offer more attractive.
Understanding what a seller wants, and being flexible so that you can meet those needs, is fundamental. Yes, a buyer’s solicitor should be instructed to submit their searches the day the offer is accepted, but could search indemnity insurance be an option to explore instead? Any mortgage lender will be a factor in this decision (and it should be borne in mind that an indemnity policy will not cover planning matters which can be a concern). If the seller is willing to provide the searches carried out at the time of their purchase, provided they are not too old, the earlier searches can assist the buyer’s team in progressing the due diligence more swiftly.
In a similar vein, a buyer’s team could consider a conditional exchange if the circumstances are suitable. This will allow exchange to happen swiftly while the buyer’s team are waiting for documents to be issued that can typically cause delay, for example, a local authority search. In all cases, the conditional contract provisions will have to be carefully drafted.
Exchange of contracts is the point at which both parties are contractually bound, but the completion date which suits each party can vary significantly. Moving to exchange swiftly but agreeing a delayed completion date could be very helpful to a seller who needs more time to move. The parties could even explore a sale and leaseback arrangement where completion takes place but the property is let to the seller by the buyer post completion. By allowing the seller to remain in the property after completion, you can put the seller in an excellent position for any onward purchase as they will be chain free. (Of course, this arrangement will depend upon the buyer having somewhere else to live in the meantime!)
Communication throughout the transaction is also essential. The buyer’s team should ensure that both they and their client remain in contact with all members of the seller’s team. Buying and selling property can be an emotional process. Open and regular communication can ensure that expectations are managed and difficult messages are explained and discussed.
Exclusivity and option agreements
Occasionally, a buyer needs to let their money do the talking, and a seller may find it hard to turn down an offer to put down some funds at the time the deal is agreed. In this case, a buyer’s team might consider an exclusivity agreement, which involves the buyer paying a (refundable or non-refundable) deposit to the seller who in return agrees they will not engage with other buyers during the exclusivity period and that they will exchange with the buyer so long as the buyer is ready before the period expires. However, the limitations of these agreements need to be understood. Legally, an exclusivity agreement does not compel the seller to exchange with the buyer (since an agreement to agree is unenforceable under English law). In most cases, it can be relatively easy for either party to walk away (although the buyer may forfeit their deposit if they do so). Additionally, if the exclusivity agreement is heavily negotiated, valuable time can be wasted at the start of the transaction which might be better spent on the buyer’s due diligence and getting to exchange as soon possible.
If a buyer wants certainty and to compel the buyer to exchange with them as long as they are ready by a particular deadline, they can pursue an option agreement. However, this will typically require the payment of a much larger deposit sum (or option fee) which would always be non-refundable. So, a buyer contemplating an option agreement will probably wish to be fairly certain that they will proceed (and willing to lose a significant sum of money if they decide to walk away).
In an incredibly competitive and fast paced market, preparedness and speed are truly of the essence. By putting together a buying team early in the process, a buyer can empower their team to approach the deal with an arsenal of creative and practical solutions to expedite the purchase and to ensure that they secure the best property on the best possible terms.