Should offers to buy properties be accompanied by a deposit?

Should offers to buy properties be accompanied by a deposit?

0:08 AM, 22nd January 2023, About A year ago 10

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If you’re anywhere near to being as passionate about property as I am, Netflix reality TV shows such as Selling Sunset are likely to have come onto your radar at some point. Love or hate the program, there is always something to learn from every episode, and that’s aside from getting a sneaky peak at some of the most beautiful homes on the planet and the equally beautiful but often bitchy ladies so unashamedly modelling the latest fashion couture whilst selling them. I’m not just talking about the opportunity to critique the ladies and their often dreadful selling skills or personalities either.

So, what do phrases we often hear in every episode like “all cash, 7 day closing and no contingencies” actually mean?

Well, in the USA it’s commonplace for estate agents, or Realtors as they prefer to call them, to insist upon an offer to buy a property being accompanied by an offer contract and a cheque (or “check” if you’re American) for 10% of the offer value.

“All cash” is as the name suggests, i.e. no financing, or what we refer to on this side of the pond as a “cash buyer”.

Closing is what we call ‘completion’ in the UK.

Contingencies means conditions attached to an offer contract, for example, common contingencies might include a structural survey, a valuation (or appraisal in America), confirmation of the purchaser’s property sale being completed, and checks on legal title or financing.

The Vendor (AKA the seller) weighs up the risks associated with each offer they receive based on a combination of all of the above before deciding whether or not to accept the offer. In other words, an accepted offer more closely resembles what we would call an “exchange of contracts” here in the UK. However, it occurs in a matter of hours or days in the USA as opposed to weeks and often months here in the UK.

I have to say, I think the Americans have got this right, because a purchaser in England can walk away from a deal without any significant financial losses at pretty much any point. For example, you could accept an offer and take your property off the market, only to be told weeks or months later that your buyer has pulled out due to nothing more than a change of heart. Meanwhile, you have borne the costs of Council tax, insurance, maintenance of the property and probably mortgage payments and a bucket load of other stress. This is far less likely to happen in the USA, unless of course you accepted an offer riddled with ‘contingencies’ to enable your buyer to get their deposit back if the deal falls through on reasonable grounds.

What are your thoughts on this?

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Ian Simpson

6:20 AM, 22nd January 2023, About A year ago

Thanks Mark, I agree with you, but sadly, this government, like everything else they fail to do, won't be changing this law any time soon either. I have just (finally) sold a six bed HMO to a third buyer after the previous two just pulled out. Each time my lawyers helpfully sent an invoice for the aborted sale of £1000 + VAT. Cheers chaps!! This firm, before it was gobbled up by a big corporate group, used to charge far less for conveyancing, and nothing at all for an aborted sale, and were also a damn site quicker than they are now.

Similar to councils really - we pay now about double the council tax compared to 5 years ago, zero discount for empty properties, and the bins are only emptied every 2 weeks instead of weekly. All part of the culture of "Pay more, Get less".


7:29 AM, 22nd January 2023, About A year ago

If so, shouldn't it apply both ways, I mean a buyer can potentially lose far more where w property falls through because they may have paid for surveys etc.

Maybe a matched bond from both parties would be more appropriate.

Neil Patterson

8:59 AM, 22nd January 2023, About A year ago

I watch them all as well and also include the cars as part of the entertainment to critic 🙂

After house hunting for a few days in Winterhaven it now makes more sense.

Although I don’t think Selling Winterhaven would have quite the same number of viewers with you and Geoff lol

Small Landlord

19:01 PM, 22nd January 2023, About A year ago

You'll find though in America and other countries, the seller has done all the searches and checks which form part of the contract. So when you get the contract, you have a pretty good idea of what you are buying. Unlike the UK where those searches get done by the purchaser afterwards and take forever. You then start discovering all the gremlins and problems and then get a much better idea of what exactly it is that you are purchasing
Now the UK government did attempt to address this with the "Home Buyers" pack in 2007 that got watered down to just the EPC. That irregular document meant to give an indication as to the energy performance is now key to mortgages and if it goes to C, massive costs to landlords with no real benefit (and doesn't apply to owner-occupiers).
The EPC assessment is riddled with problems as it is now doing something it was never intended to do, and the usual of no matching resources to 'update' it to make it fit for purpose. You can replace electric storage heaters with eco-friendly alternative energy sources that aren't recognised by EPC assessors software, and even though you've made a massive improvement, your EPC grade will be worse.
If the UK government wanted to fix the problem, just make it that all the searches have to be completed by the seller before the property goes to market, similar to the EPC. If 1/3 of properties fall out of bed during the conveyancing process, that means 1/3 of solicitors, inspectors, valuers etc are redundant and will start to unclog the system.
However I think I have a better chance of seeing a pig fly.

Mark Alexander - Founder of Property118

0:44 AM, 24th January 2023, About A year ago

Reply to the comment left by Small Landlord at 22/01/2023 - 19:01
It's funny you should mention that, here's my wife's latest painting ...

Mark Alexander - Founder of Property118

23:56 PM, 24th January 2023, About A year ago

Reply to the comment left by Neil Patterson at 22/01/2023 - 08:59
It just goes to show Neil, we all fall for a pretty face, product placement and an opportunity not gossip at times.

I also agree that me and my US realtor friend Geoff would probably find it very difficult to persuade Netflix do run a series like Selling Sunset in Winter Haven, Florida, especially if me and Geoff we're the stars of the show and Old Man Franks Dive Bar was our regular meeting place lol 😂

Darren Peters

10:02 AM, 28th January 2023, About A year ago

In Australia, the seller typically has a building and pest survey done in advance so there's (hopefully) no surprises.

The buyer can make an offer subject to their own building survey or unconditionally and if accepted there's no backing out of the latter and no backing out of the former if your own survey finds nothing wrong.

Mark Alexander - Founder of Property118

13:55 PM, 28th January 2023, About A year ago

Reply to the comment left by Darren Peters at 28/01/2023 - 10:02
What are the financial consequences of backing out in Australia?

Darren Peters

22:25 PM, 28th January 2023, About A year ago

Reply to the comment left by Mark Alexander - Founder of Property118 at 28/01/2023 - 13:55
I checked with my brother-in-law mortgage advisor over there for a first-hand more accurate answer. This is his exact response but for names:
Each state and territory has slightly different rules so to start with I will explain Queensland Law. Queensland is one of the most black and white states.

A) if the buyer signs an unconditional contract of sale and doesn’t have a building and pest clause or finance clause, the buyer can change their minds in the first 5 days (cooling off period). If the buyer pulls out during the cooling off period they need to pay 0.25% of the purchase price. I am seeing more and more contracts that are signed where the buyer needs to waive the cooling off period meaning the contract is unconditional.

If the buyer changes their mind after the cooling off period then they are legally obligated to complete the purchase. The contract is 100% legally binding and the vendor has a couple of options to recoup losses. They can sue the purchaser to make them complete the purchase or the vendor can resell the property and sue the original purchaser for any difference in purchase price plus additional selling costs.

Of course the legal fees are high so you would only go through with this action if you could establish that the purchaser had assets worth pursuing. An example:

Jane X sold a unit in surfers paradise last year. A first home buyer signed an unconditional contract and waived building and pest, finance and cooling off. The buyer paid a $5,000 deposit. Turns out the purchaser couldn’t get Finance. Given he was a first home buyer and had minimal assets, the decision was made to just keep the $5k deposit and let the buyer off the hook. Jane X was then able to sell the property again for more money.

Another example is John Y’s property had a contract signed with all conditions waived including cooling off period. The very next day the buyers solicitor called to say a mistake had been made and the contract needed a finance and building and pest clause put on the contract. John Y’s solicitor ascertained that the client had several properties and thus it was worthwhile pursuing legal action or at least threatening legal action.
The threat of legal action was enough and now the buyer is going to complete the purchase and pay the additional legal fees incurred by John Y for threatening legal action.

B) if a contract has a building and pest clause, even if the vendor provides a building and pest survey, the buyer is entitled to do their own and if it is not satisfactory to the buyer then they can pull out of the contract and have 100% of the deposit refunded.

For my clients, I always recommend they have a finance clause and building and pest clause and to not go unconditional until they have the written confirmation from the lender that finance is approved. I have had really good clients only have a finance clause and not a building and pest clause and then the clients found termites. I was able to inform the lender of this and they provided a finance declined letter. The bank didnt want a house with termites as security.
It is very rare for a lender to retract an unconditional finance clause. If this were to happen the buyer is still legally obligated to complete.

Other states are slightly different as contracts are exchanged. One contract for the buyer and one contract for the vendor. The contract isn’t unconditional until the contracts are exchanged. This complicates things as there can be more than 1 contract from buyers in play. This can lead to buyers paying all the money for building surveys only to be gazumped by another buyer. In Qld there can only be 1 executed contract at a time. I feel Qld is a very fair system for both buyers and sellers.

Qld contracts have a settlement date listed and if the buyer cannot complete by that date then penalties apply. The laws changed last year as prior to 2022, a vendor could terminate the contract if settlement didn’t take place on the exact date. There was a well publicised case in Qld where their property prices were increasing at a huge rate. First home buyers purchased a property for $750,000 and paid a 10% deposit. Finance all approved with a 30 day settlement. Westpac (finance company) screwed up on settlement day and weren’t ready until the following day. By this time, the vendor decided to be greedy and cancelled the contract, took the $75k deposit and then resold the property for $1m.
Qld laws have changed to now give a grace period of 14 days. Penalties can still be passed on however the contract cannot be terminated inside the 14 day grace period.

Jenn Smythe

10:52 AM, 31st January 2023, About A year ago

Having been royally screwed over with current renting issues by the landlord and estate agents, we decided to buy...ended up in a long chain (broken then fixed) the sellers (who had only bought the property 1 year previously) dragged their heels so much with responding to basic enquiries (nearly 4 months for a partial response to some of them) we then had no chance of the property going through before the mortgage offer expired. In the mean time Truss had her day and mortgage interest rates jumped and the value of the house dropped quite significantly from our original offer.
We paid for initial conveyancing fees, a full property survey, all for nothing, as we have now had to withdraw from purchasing, on the face of it, for no reason, but in reality the sellers have been uncooperative, the mortgage offer is due to expire very soon and we have a financial loss and nothing to show for losses and the frustrations and stress can go both ways

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