First Time House Buyer Question

[philly169]

I'm going through the house buying process at the moment, the house we are buying was part exchanged by the current owners for a new build so is being sold by the builder/asset management company to us.

We are at the stage now where mortgage has been agreed and contracts signed etc which is great, so almost ready to exchange. The problem is, the new build that the current house owners are moving into will not be finished until June, we were told, we found out today its the 28th June (the current owners/residents told us today when we had a second look and to measure a few things up)

We are being pushed by the asset management company/builder to exchange as soon as possible, seems like they want to be able to put it on their books for a sale in this financial year.

My question is, if we exchange, we would then need to get buildings insurance sorted and paid for the next 3 months with us not living there, as well as paying a hefty deposit 3 months in advance. I would then be responsible for the house for 3 months if something happens to it whilst the current people are living there, is this correct?.. Is it wrong for me to turn around and say we do not want to exchange until closer to the completion date?

what could happen if we do that? can they sell to someone else? what is the normal time frame from exchange to completion?

 

[GB72]

You are not in an unusual position. Developers still act as if they are in the strong bargaining position that they were in during the mid 2000s despite the market being far less bouyant. The one thing that they will not budge on is the completion date. I am relatively certain that they will not even be offering 28th June as a fixed date. Developers exchange on what is called an 'on notice' basis which means that you will get 7-10 day to complete after they have finished building the new property. They will not, for example, start fitting the preferences chosen by the buyer until after exchange. You are also correct in that the Standard Conditions of sale do provide for you to insure from exchange. That said, Part Ex properties are a bit different and the developer may well keep the house on one of their block policies until completion or may even have provided that the current owner insures in their contract. Well worth checking.

What you are also correct about is that the developer will move heaven and earth to get the exchange in this financial year. If you have any desire to do a bit of last minute negotiation then now is the time and you are very well placed to do so. Just be wary that if you agree any changes in price or other such incentives, they will need to be declared to you lender and this can cause a little bit of a delay.

 

[fundy]

Firstly they cant account for it until the date it completes (what they will be looking for is to be meeting targets for % of that quarter houses at the deposit or exchanged statuses).

Secondly, yes you would need buildings insurance, not an excessive cost but if its an issue ask the other side for a contribution if they want early exchange of contracts.

Thirdly, deposit. I would ask your solicitor to negotiate that if they want an exchange of contracts this early, then you will only be putting down a token deposit (say £1,000) rather than 5 or 10% that will be being requested (this doesnt stop them havinbg a clause that if you break the contract you are still liable for say 10% by the way).

Fourthly, no reason for you to delay exchange if they agree to the above, until you exchange yes they can sell to someone else with no recourse to you.

Finally, exchange to completion can be instant or it can be many many months, it really depends on the transaction

 

[Foxholer]

Your Solicitor is the guy to check with really. But in England, as far as I understand it, until contracts are exchanged anything can happen.

You should consider what might happen if there are further delays to building completion. Your Solicitor should know the pitfalls and workarounds to that.

Be aware that, as you are at the bottom of the chin, you are in the driving seat. If the building company wants you to sign up fast, then your reply could easily be 'What incentive are you going to provide?'

Buying a house is can be a brutal experience - and, when a building company is involved, you need all the help you can get. Though it has to be measured against the cost of your Solicitor etc.

 

[GB72]

Just notice your last 2 points. Until contracts are exchanged, everything is up in the air so they can sell to someone else or renogitiate any terms. As for the time between exchange and completion, there is nothing fixed and I have seen anything from 1 day to 6 months and everything inbetween. On regular transactions it tends to be a week or two but, as explained above, developers will normally insist on an on notice completion and I seen these require up 6 months between exchange and completion.

 

[MetalMickie]

Firstly they cant account for it until the date it completes (what they will be looking for is to be meeting targets for % of that quarter houses at the deposit or exchanged statuses).

Secondly, yes you would need buildings insurance, not an excessive cost but if its an issue ask the other side for a contribution if they want early exchange of contracts.

Thirdly, deposit. I would ask your solicitor to negotiate that if they want an exchange of contracts this early, then you will only be putting down a token deposit (say £1,000) rather than 5 or 10% that will be being requested (this doesnt stop them havinbg a clause that if you break the contract you are still liable for say 10% by the way).

Fourthly, no reason for you to delay exchange if they agree to the above, until you exchange yes they can sell to someone else with no recourse to you.

Finally, exchange to completion can be instant or it can be many many months, it really depends on the transaction

Are you certain? I would have thought that they could show it in their accounts as a sale but there would be a corresponding debtor of the outstanding balance.
No different to a company selling an item to another before trading year end but their credit terms (28, 90 days whatever) overlapping to another trading year.

 

[fundy]

Are you certain? I would have thought that they could show it in their accounts as a sale but there would be a corresponding debtor of the outstanding balance.
No different to a company selling an item to another before trading year end but their credit terms (28, 90 days whatever) overlapping to another trading year.

Unless theyve changed the rulers since I was an FD for a house builder then yes. The point of sale is quite clearly completion, explains why a lot of developers rush through a lot of completions at quarter, half year and year ends

 

[philly169]

cheers guys, some good points here, especially offering a lower deposit. I will be speaking to the solicitor tomorrow as we are away on holiday at the end of the week so they will want this part done asap.

 

[MetalMickie]

Fundy I bow to your knowledge of the subject although I still cannot see the difference between this and the garment mfr who supplies say M&S on 15 March, year end say 31 March, but receives payment 15 June (if he's lucky!).

 

[Picto]

Hi Philly169

As others have said above, its best to check these things out with your lawyer - that's what you're paying them to do!

Anyway, it doesn't hurt to get a second opinion on these things. I have worked on pretty much all sides of both commercial and residential purchases etc and I don't think there are many situations that I haven't come across. Feel free to PM me if you want to ask any follow up questions.

There's not really any "normal" period between exchange and completion, it depends on the individual transaction. Everything from same day / simultaneous exchange and completion through to a couple of years!!

It is quite normal for "risk" to pass on exchange. The reason for this is that once you exchange, you are obliged to buy and they are obliged to sell (well there are some complicated exceptions, but I wont go into those and bore you!) regardless of what happens between exchange and completion. Even if the house burns down the day before completion! Obviously your mortgage lender would pull out so that is a reason why it is in your interest to have the property adequately insured against those circumstances as the property, in some ways, becomes yours at the point of exchange. In some cases risk stays with the seller, so you might want to argue that given the time between exchange and completion, to change the clause in your contract that risk stays with the seller rather than passes to you.

That said, developers' solicitors tend to be very stubborn and inflexible (sorry if that applies to anyone on here - I know you are just following your client's instructions!) and its often take it or leave it with them - regardless of the state of the market or bargaining position!

Yes, if you don't exchange then the developer / seller has every right to pull out and sell to someone else. Go back a few years and this was happening all the time. If you didn't get to exchange within a few days of putting your offer in, you would get guzzumped - boy how things have changed!

Also, you will want (well your solicitor should do this) to check that your mortgage offer will still be valid at the end of june. Also, you will want to check the terms of your contract as, usually, new build contracts don't specify a date and the date is specified on a week's notice by the developer that the new house is ready. If you are buying a part ex off of someone buying a new build, I would imagine your contract might specify a similar clause. So you will want to make sure you have plenty of life in your mortgage offer. I've seen it happen so often where mortgage offers run out before completion takes place!

Sorry, that's a load of rambled information there and not sure if it helps at all. If you do have any questions, then feel free to PM me.

 

[fundy]

I bow to your knowledge of the subject although I stil cannot see the difference between this and the garment mfr who supplies say M&S on 15 March, year end say 31 March, but receives payment 15 June (if he's lucky!).

In your example the goods are physically transferred and it is just the payment is outstanding, in the a house buying situ the product (the house) is not exchanged on exchange of contracts but on completion so at year end the product is still with the supllier

 

[Picto]

Are you certain? I would have thought that they could show it in their accounts as a sale but there would be a corresponding debtor of the outstanding balance.
No different to a company selling an item to another before trading year end but their credit terms (28, 90 days whatever) overlapping to another trading year.

In that case, you could record the sale in your balance sheet as a trade debtor, so would bolster your balance sheet, but would not be shown in a P&L prepared on a receipts and payments basis.

Not sure if developers do the same with their books as never had reason to inspect them, but Fundy will have a better idea (given he's a previous FD!)

 

[Picto]

In your example the goods are physically transferred and it is just the payment is outstanding, in the a house buying situ the product (the house) is not exchanged on exchange of contracts but on completion so at year end the product is still with the supllier

I agree with this interpretation. Also, given that this is a part exchange, the developer doesn't even have the "product" to sell yet, as that would happen on completion (and then sub-sold to the OP), so not sure there would be anyway of getting that into the books.

Rather than "trying to get it through for this financial year" (not all companies have their financial year end to 31/3) I imagine its just that they want to lock the OP in to the purchase.

 

[fundy]

I agree with this interpretation. Also, given that this is a part exchange, the developer doesn't even have the "product" to sell yet, as that would happen on completion (and then sub-sold to the OP), so not sure there would be anyway of getting that into the books.

Rather than "trying to get it through for this financial year" (not all companies have their financial year end to 31/3) I imagine its just that they want to lock the OP in to the purchase.

That and some bonuses will partly be related to future quarter sales already exchanged etc (the cynic in me is coming out now lol)

 

[Picto]

That and some bonuses will partly be related to future quarter sales already exchanged etc (the cynic in me is coming out now lol)

No no, not been cynical - completely accurate. I've witnessed a development company offer bonus incentives to its sales staff to get sales and exchanges through at all costs when they were trying to avoid going into administration.

It didn't work and they went into administration anyway - bonus for us though as the legal work in the administration was worth more than the original site set up!

 

[fundy]

No no, not been cynical - completely accurate. I've witnessed a development company offer bonus incentives to its sales staff to get sales and exchanges through at all costs when they were trying to avoid going into administration.

It didn't work and they went into administration anyway - bonus for us though as the legal work in the administration was worth more than the original site set up!

was slightly tongue in cheek based on some of the bonus schemes id seen too rather sadly

 

[the hammer]

I work for new house builders and have done for a long time, in my experience there is no conscience with a lot of these firms. the majority of new house builders seem to have financial half years of june and dec. They will use any trick they can to make sure these dates are hit for completions, the sooner you exchange contracts ,the sooner,they can make the chain legally binding. Should the purchasers decide they want to put it back into july, they just dont accept it, fix a date at the end of june, if you dont complete then charge you/sue you for intrerest on the late money.
December is normally worse than june as weather and daylight are against you.

 

[philly169]

thanks for all your help on this guys.

update - we exchanged today with a completion date of june on notice. managed to get them to insure the building until completion and take only a 5% deposit.. They tried to pressure us into doing it quick but gave in to our requests

 

[fundy]

thanks for all your help on this guys.

update - we exchanged today with a completion date of june on notice. managed to get them to insure the building until completion and take only a 5% deposit.. They tried to pressure us into doing it quick but gave in to our requests

well done Philly, good luck with the move in June (PS shouldve screwed them for more lol)