Looking to buy a home? Top tips to seal that big acquisition

The Irish Times
Tue, Jul 24, 2018,
From booking deposits to contracts – and what could and should be done before the sale

It’s a time consuming business, buying a property. And if giving up your Saturday morning lie-in to traipse around house after house, only to be outbid time after time, isn’t enough to get your goat, the delays which can beset you when you’ve actually gone sale agreed might just about push you over the edge.

It has been suggested by estate agents across the State that it is now taking as long as 200 days, or about six months, to complete the average property sale. Six months of activity between each party’s solicitor; six months which could be spent picking out tiles and paying down the mortgage. And most of all perhaps, six months in which either party can pull out.

The process has never been quick, but the most recent delays mark a significant uptick in the amount of time it is taking.

“The situation is not getting better in our eyes,” says Galway-based Ronan Long, chairman of Property Partners, adding that a lot of the issues that arise “should be ironed out before the property is listed for sale”.

It means that buyers are becoming increasingly “frustrated”, especially when the sale doesn’t go ahead at all. So much so in fact that Dublin agent Hunters has just announced that it is going to stop taking properties to market if the vendors haven’t got their contracts in order.

So what’s behind the delays and will it change?

How does the sales process work?

You’ve found your house, paid the booking fee and cracked open the champagne. But it might be wise to opt for a Lidl cava rather than a bottle of Moet & Chandon. Under the Irish system, going “sale agreed” doesn’t mean very much.

Legally, both parties can still pull out at this stage, with neither losing out. In our system there is no binding contract for the property until contracts have been signed by vendor and purchaser. This means that, typically, the buyer will still be entitled to their booking deposit up until the time at which contracts are signed.

This booking deposit might be a flat €5,000 or a percentage of the sale price. For example at Cairn Homes Churchfield new development, a booking deposit of €5,000 is required.

Signing contracts

While you’re working on getting your mortgage documentation in order and doing your survey, your solicitor may be discussing issues relating to the property with the vendor’s solicitor, as well as doing various searches on the property in a process known as conveyancing.

Once all this is in place, you will attend your solicitor’s office to sign contracts, which are then passed on to the vendor’s solicitor to sign. At this point, and only at this juncture, have both parties legally committed to the sale.

You will also pay a “deposit” at this point, which is about 10 per cent of the purchase price, less any booking deposit you have paid.

If either party pulls out of the sale before contracts are exchanged and become legally binding, the purchaser would be entitled to the return of their entire deposit without interest, costs or compensation.

Extreme caution would need to be exercised as the exact timing of either party pulling out may be difficult to prove – not something to be gambled with if you have no real intention of buying or selling.

With the exchange of contracts, both parties agree a final “closing date” and time, at which point the balance purchase monies will be transferred to the vendor’s solicitor and the buyer will get the keys to the property.

All going well, Vicky Pigot, senior associate solicitor at Kane Tuohy, says it should be possible to close the typical home within six weeks of reaching sale agreed, with about two weeks needed from going sale agreed to signing contracts.

And it can sometimes be even shorter.

“I acted in the sale of a house which completed in six working days from receipt of title deeds,” she says. “However, this was exceptional. All the parties involved were willing, and great efforts were made, to facilitate completion within the timeframe agreed by those parties.”

She notes that where contracts have become legally binding, party can only withdraw if they had a valid claim for a rescission of the contract – such as where there is a discrepancy, error or misrepresentation in the contract for sale.

Are there problems with this approach?

But it isn’t always so straightforward and unforeseen difficulties can, and do, arise at this stage, difficulties which many players believe should have been seen to before the property ever came on the market.

If, for example, the buyer does their survey and discovers issues with the roof or damp or other issues, they can withdraw their original offer and make a lower bid, or they can simply walk away from the sale altogether.

In years gone by, many sales fell through because the bank didn’t approve the valuation and the buyer couldn’t get the mortgage finance. With the new Central Bank rules, this can again prove to be a problem as people who don’t have the adequate finance in place bid and find that they then can’t follow through with the sale.

Today however, some sellers also are not coming to the market adequately prepared – in part because any delays that beset the process can play out in their favour. In Galway for example, Long sold a property some seven months ago by private treaty. It still hasn’t closed.

Long has another example of a property he is now selling for the third time. The two previous sales collapsed due to issues with the contract.

“I’ve had it on my books for the last two years,” he says. Each time he “sold” the property, the price went up. Now it has gone sale agreed for €225,000 – but when the contracts were issued, they were the same contracts that were issued to the two other parties.

“Surely lessons should have been learned by now,” he says.

In Dublin, Rowena Quinn, managing partner of Hunters, says it has gotten so bad that the agent will now no longer launch a property for sale until the contracts are prepared.

“Contracts should be prepared prior to the commencement of the sale process and there is no reason that all solicitors cannot co-operate with this,” she says.

Rising prices can favour vendors and don’t incentivise them to get their house in order before coming to the market. If a sale is taking seven months to close for example, and contracts still haven’t been exchanged, the market will have shifted upwards by about 7-10 per cent. So why wouldn’t the vendor at that point pull out and start again at a higher price?

“There is more of an incentive to say ‘the hell with this, let’s go back to market again’,” says Long. “There is a clear incentive for the vendor, a temptation for the vendor – in some cases it becomes too much.”

For vendors in a chain, it may also make sense not to rush the process if they’re waiting on the other side for a sale to go through. After all, if they sell their home now, but the one they want to buy falls through, should they cancel the sale now rather than selling at 2018 prices and having to buy at 2019 prices?

And of course if the sale drags on too long, the purchasers’ mortgage approval may have expired and they may not get it again.

“But a delayed process also offers a different purchaser another chance to come in at last minute and offer a bit more,” says Long.

Another experience meant Long went sale agreed on a property, only for an engineer to come back and argue that the property was in fact leasehold – not freehold. Again this was information that should have been disclosed right at the very start.

Forced or voluntary sales at the behest of the lender can also exacerbate the process, with such sales needing the written consent of the bank to proceed. Getting this can take time.

“It may take time to get consent of that sale,” says Pigot, noting that this can be the case even when the proposed purchase purchase price exceeds the market valuation, as the sale may be part of an overall property portfolio and can’t be considered in isolation.

What could be done pre-sale?

Given the difficulties in closing a sale, estate agents across the State want to see more work done before the property is even marketed.

“A lot more work could be done on properties to make sure the contracts are ready,” says Long. “And it should be vendor-led”.

This preparatory work could involve perfecting title, rectifying any issues with regards to easements or rights of way, ensuring any outstanding charges on the property, such as the second home charge (NPPR) or property tax, are regularised – or in the case of receiver sales, dealing with any liabilities on the property. Planning is often an issue, with some vendors filing for retention after a property goes on the market or not at all.

Blame for the lengthy conveyancing process has also been laid at the feet of solicitors, with some claiming the process takes so long, because they have to justify their fees.

E-conveyancing, which has been talked about for more than a decade, is now entering a new iteration, with the Law Society pursuing an open access model, in conjunction with other stakeholders such as Government and the banks, could help speed up the process. But it’s likely to still be some time away.