The process of buying a house is fairly well defined and regulated, and is broadly speaking as follows:
- Property marketing – once an agency agreement and contract for sale are in place, a property is marketed by the real estate agent. Unless a specific auction date is set, this is an open ended process, running until the vendor accepts a suitable offer from a buyer
- Due diligence – if the property is of interest, a buyer will undertake some basic due diligence. Typical is a review of the contract for sale by the buyer’s solicitor or conveyancer, understanding what rates, taxes and other holding costs are associated with the property, and obtaining a building & pest inspection report for the property
- Negotiations – whilst due diligence is underway, the buyer, through the real estate agent, will negotiate a price to buy the property at, and the terms upon which the purchase is to be made
- Finance – during negotiations, the real estate agent should try to ascertain if the buyer is finance approved already, or if that is still an outstanding matter. It is best for the vendor, through the agent, to be clear about this issue
- Under offer – once a suitable offer is accepted, the property is said to be “under offer” and whilst not legally binding on the vendor, it is normally understood that the property will not be sold to anyone else. The buyer must however complete any outstanding due diligence steps, secure formal finance approval and give the vendor comfort that all is progressing towards a legally binding sale. During the “under offer” stage, a vendor is entitled to instruct the real estate agent to sell to another higher bidder, especially if the buyer takes too long to complete due diligence or arrange finance
- Contract exchange – if the buyer’s due diligence does not uncover any adverse issues and the contract is acceptable, the sale is made legally binding by payment of a non-refundable deposit by the buyer and an ‘exchange’ of the contracts between the vendor and buyer solicitors. The deposit is normally 10% of the agreed purchase price and exchange of contracts means that both parties have signed an original, identical version of the contract which – when exchanged and held together as two parts – form a binding contract on both parties. It would be advisable for the buyer to have finance approved before exchanging on a property, but in rare circumstances that may not be the case. If finance is not forthcoming before settlement, the buyer risks the loss of any deposit paid. It is not advisable therefore to exchange contracts before formal finance approval has been obtained by the buyer
- Settlement period – the contract for sale will define the settlement period which is normally 42 days / 6 weeks from date of exchange. A delayed settlement of any length can however be negotiated between the parties
- Final inspection – shortly before settlement, the buyer will normally inspect the property and make sure that its condition and any contents included in the sale are satisfactory and in line with expectations. This can be done by the buyer or delegated to the real estate agent or some other party
- Settlement day – on the day of settlement, the solicitors for both parties will arrange for payment of the balance of the purchase price, plus any adjustment for rates or other expenses that may have been paid in advance by the vendor. In addition, as would be expected, the title deeds register is updated to reflect the changed ownership and the local authority that charges rates in relation to the property will update its records
- Order on the agent – on the day of settlement, the vendor’s solicitor will at some stage issue an ‘order on the agent’ to the real estate agent selling the property. This document evidence that everything required to complete the sale has taken place, and it gives the real estate agent formal authority to hand over the keys – thereby giving the buyer unrestricted access to the property
- Occupation and organisation of utilities and insurance – the buyer is now free to occupy the property and the onus is upon the buyer to ensure that all utilities are changed over to new account details. Electricity, gas and water will need to be attended to, and the real estate agent can advise who the current suppliers are. It is best to arrange the transfer of utilities in advance of and effective from the settlement date, however if not, most utility providers will continue supply to the property and will instead back-date the allocation of who pays for what usage to the date of settlement. The buyer must also ensure that adequate insurance for the property and its contents is taken out in a new name
If the property is in a holiday rental pool, the buyer is entitled to cancel all future guest bookings after settlement and use the property privately. A notice period is not stipulated in any legislation or regulation.
If the property is tenanted with a permanent residential tenant, a new buyer may only terminate the lease if the fixed term of the lease agreement has expired or is about to expire. In particular, notice must be given 30 days prior to the end of the fixed term of the lease, or if the fixed term of the lease has already expired, 30 days must also be given to the tenants. In the latter case, if the tenants hand back the keys and vacate the property before the end of the 30 days, they do not need to pay rent beyond that time.