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Managing my money for young adults
Managing my money for young adults

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5  Completing the transaction

This is a photograph of a For Sale sign outside a house.
Figure 3

Once the price of a property has been agreed between the buyer and the seller, both parties approach their solicitors (or other conveyancer) to seek completion of the transaction. This part of a property transaction is not without its pitfalls.

First there is the issue of whether the agreed price is binding.

In Scotland the buyer submits their offer to the seller by an agreed date and the seller selects the best offer. Usually, at this point, the price agreed is binding so the mortgage needs to be arranged before the offer is made.

In England, Wales and Northern Ireland, until the legal contracts are ‘exchanged’ between the two parties, both the buyer and the seller are able to seek to change the price originally agreed and even to pull out of the deal without penalty. Sellers might accept a new, higher offer up to the point when contracts are exchanged – an unpopular process known as ‘gazumping’ – but if the market is weak there is the risk of ‘gazundering’, where the buyer cuts the level of their offer at the last minute.

The exchange date is particularly important if there is a long ‘chain’ of sales involved. Usually buyers and sellers in a chain of housing transactions coordinate to try to ensure that no one remains committed to buying a property without having secured a commitment to have their existing property bought. The longer the chain, the greater the risk of problems that will prevent completion of the individual transactions.

When all the documentation is ready a ‘completion date’ is agreed, binding contracts are exchanged and the buyer pays a deposit to the seller. If the buyer pulls out of the agreement for any reason after contracts have been exchanged there are various financial sanctions that can be imposed. The completion date is when ownership passes legally from the seller to the buyer and the money is paid. This is also usually moving-in day too.

One decision that needs to be made if two people are going to buy together (whether as partners or not) is how the property will be owned legally. For instance, if they own it as joint tenants, each jointly owns the entire property, so on the death of one party their interest in the property would pass automatically to the survivor. Therefore, couples will usually buy a property as joint tenants.

By contrast, tenants-in-common each have a distinct share in the property. In Scotland, the equivalent terms are joint owners and owners-in-common. However, in Scotland, joint owners will have to have a ‘survivorship destination’ clause in the deeds to determine what happens to the property if one of the joint owners dies.

Activity 3  Chain reaction

Timing: Allow about 5 minutes

What problem can arise if all the parties in a chain of property transactions do not exchange contracts simultaneously? Have a go at plotting the financial and practical implications.

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The risk is that one party could find themselves committed to buying a property (by having exchanged contracts) before a similar commitment has been made on the sale of their existing home. If the buyer of their existing home pulls out of the deal (which can happen, even at a very late stage) then the affected party has a major problem. Without the proceeds from the sale of their existing home they may not have the money to complete the purchase of their new home.