If your property deal falls through in the future, you could be nicely compensated.
AssuredSale is a new service that aims to reduce the chances of property transactions falling through.
Regardless of which side of the transaction you're on, when a long-awaited property deal falls through it can cost not just a lot of time and frustration, but also hundreds or thousands of pounds.
Property is one of just two areas of law where a verbal agreement cannot be legally binding, the other being your will. This leads to many parties pulling out of informally agreed deals, or demanding changes to what you have already agreed.
AssuredSale reckons it will reduce the likelihood of this happening through financial incentives and better communication between the parties. Let's take a look at how it should work.
The party pulling out must compensate the other
The buyer and seller both pay a fee to AssuredSale to store “bonds”, which are a kind of deposit, in a ring-fenced client account at Co-operative Bank. Each party has a bond so, if one party gazumps, gazunders or pulls out, they will lose the bond as a penalty: the other party gets their own bond back, plus the other person's bond too.
AssuredSale suggests that the bonds range from £500 to £5,000, depending on the Stamp-Duty band, but the two parties can agree a different amount. The service charges the same fee to both parties, depending on the bond size:
|
Property price |
Suggested bond amount (each) |
AssuredSale fee (each) |
|
Up to £125,000 |
£500 |
£75 |
|
Over £125,000-£250,000 |
£1,000 |
£100 |
|
Over £250,000-£500,000 |
£2,000 |
£150 |
|
Over £500,000-£1m |
£3,000 |
£200 |
|
Over £1m |
£5,000+ |
£300 |
AssuredSale claims 31% of property deals fall through, which is 200,000 per year. However there are several reasons why the penalty might not apply, and both the buyer and seller get their own bonds back, in the event of a deal collapse. Reasons include if the buyer fails to secure a mortgage based on the valuation, if the seller refuses to reduce the price based on the survey results, or chain failure.
These are all reasonable exceptions, so long as they are truthful. Tim Price, founder of AssuredSale who once lost £2,000 when a property transaction he was involved in fell through, told me that the service can demand evidence of the reason for transaction failure, e.g. if one of the transactors says the chain has collapsed, AssuredSale can seek evidence from the agent involved.
Improved communication removes jitters
The service also aids communication, since you can see the progress of each other's position online, tracking whether the buyer has instructed the mortgage lender or signed the contract, or whether the seller has instructed a conveyancer.
If you can get a whole chain to work through AssuredSale, it will increase the chances of all the deals going through further. You can track whether different parts of the chain are proceeding smoothly, or see if there have been issues raised.
The process does not interfere with any other agreements you have, such as with estate agents. Indeed, your agent can manage the AssuredSale part for you, if you wish, and the service will support you or your agent with any issues that arise.
Both bases covered
Communication and, more importantly, financial incentives, are the two best ways to increase the chance of completion, and this is what AssuredSale appears to offer.
[SPOTLIGHT]Its website quotes the Office of Fair Trading's Home buying and selling study of 2010, which concluded: “Overall, it seems likely that the benefits of an earlier point of commitment leading to a quicker, more certain process, which reduced the failure of chains of transactions, would be significant.
“Better communication between all parties should help prevent information problems from jeopardising the transaction.”
My view
The financial incentives might seem a bit small to some. At just £500 for a £125,000 property, for example, that amounts to less than half a percent. The E-Homebuying Forum, which is an association of mostly large conveyancing solicitors, has suggested that 5% to 10% of the sale price should be put down to identify timewasters, and speculative buyers and sellers. This amounts to £6,250 to £12,500 on a £125,000 property.
However, this probably doesn't properly reflect the situation in a voluntary scheme such as this. Firstly, those who agree to swap bonds through AssuredSale aren't likely to be time-wasters and speculators in the first place. Secondly, the pain of losing something you already have – in this case the money in your bond – is always greater than the pain if you had never had that money in the first place.
It will be interesting to see what percentage of AssuredSale transactions fall through, but I would expect it to be lower than the national average. Hopefully the price will come down further though, since £75 for a £500 bond -- and an untested new system -- doesn't feel cheap to me.
Two more tips for getting the deal done
My top tip for a seller to reduce the chances of a deal falling through is to price lower, and attract a lot of bidders. This way you have potentially more sound people to choose from. If you have a few similar offers and one is from an international buyer, for example, you could give preference to domestic buyers. This is because the E-Homebuying Forum says that international buyers frequently place speculative offers on lots of properties, so many more fall through. It can also help you avoid this scary blunder which could cost you thousands.
The other advantage to this strategy is that multiple buyers attract bidding wars, which firstly will give you a good idea what the average person thinks the property should currently be priced at and secondly the winning bidder frequently pays higher than they initially intended to in auction situations. I have used this property selling strategy very successfully myself, and it should work in so-called “buyers' markets” as well as in sellers' markets.
My second tip comes from Co-operative Bank, which says that sellers should appoint a solicitor as soon as they put their properties on the market, so that a draft contract can be ready immediately. Buyers, on the other hand, should get an agreement in principle from a mortgage lender before looking at properties. This speeds up completion, and faster deals have been shown to fall through less often.
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