This guide is an outline of the sale process of residential property in England and Wales. It provides a basic overview of the procedures and steps involved in a straightforward transaction, but it should nevertheless be borne in mind that each transaction is different and must be approached as such with the benefit legal advice.
The steps involved when selling a property
1. The seller will most likely have instructed a selling agent to market the property, and the selling agent will throughout the sale process be acting for the seller and representing the interests of only the seller, and not the buyer. The seller and buyer will agree the terms of the sale, which will include: the price, specific items to be included in the sale, time frame to exchange contracts and complete, and possibly a period of exclusivity for the buyer, where the seller will not market the property or deal with other potential buyers usually subject to the payment of a deposit by the buyer, which the selling agent will incorporate in a memorandum of sale and circulate to the parties and their solicitors.
2. The buyer’s solicitors will write to the seller’s solicitors requesting the ‘contract papers’ and the seller’s solicitors will prepare a sales package consisting of a draft contract, title papers to the property, and answers to questions about the property (including a form setting out items which will or will not be left at the property, and items for which payment will be required) which are contained in the Law Society’s proforma standard property information forms. In the interests of expediting the sale process, it would be useful for the seller to also include other relevant documents relating to the property such as warranties, guaranties, planning and building consents.
3. On receipt of the sales package, the buyer’s solicitors will obtain searches from public and private bodies to check for any adverse results which effect the property and will review the sales package provided, the search results and the result of a survey report which the buyer or the buyer’s lender would have commissioned, and where necessary, will raise a number of specific enquiries with the seller’s solicitor.
4. The parties’ solicitors will agree the final form of sale contract including the amount of the contractual deposit to be paid by the buyer, a completion date, which can typically range from 1 week to 4 weeks or even be simultaneous and any other required specific conditions. The amount of the contractual deposit to be paid by the seller on exchange of contracts. Traditionally a deposit equivalent to 10% of the purchase price is paid, but this is no longer a hard and fast rule and a deposit of less than 10% is acceptable dependent on particular circumstances.
The purpose of the deposit in broad terms, is that in the event that the buyer fails to complete the purchase due to the buyer’s default, the seller may forfeit and keep the deposit and if the seller fails to complete due to the seller’s default, the seller must repay the deposit to the buyer (the non-defaulting party will also have other remedies available to it).
5. It is important to note that a buyer is not legally or contractually bound to purchase a property until the point the parties have exchanged contracts, which is usually during a telephone conversation between their respective solicitors. This is referred to as being ‘subject to contract’. This means that up to the point that contracts are exchanged, either party can withdraw from the transaction for any reason whatsoever without any obligations to the other party or consequences.
6. It is only when contracts have been formally exchanged that a legally binding contract is formed and both parties are bound by the terms and conditions of the contract. Should a buyer withdraw, they will lose their deposit plus any accrued interest and also be subject to a claim for damages from the seller. Should the seller withdraw, they too may be subject to a claim for damages.
7. On exchange of contracts if the property is subject to a mortgage, the seller’s solicitors will write to the seller’s mortgage lender requesting a redemption statement as at the date of the completion. The seller should continue to make mortgage payments which are due prior to the completion date. If the property is a leasehold, any service charges paid in advance by the seller will be apportioned and added to the purchase price, the seller’s solicitors having previously agreed the amount with the buyer’s solicitors. The seller’s solicitors will also write to the estate agents to obtain their commission account which will be sent to the seller for approval and will prepare a financial statement showing the financial transactions in the sale and confirming the amount of the net proceeds of sale due to the seller.
8. After exchange of contracts the seller, should contact all utility providers and the local authority advising them of the date the property will be sold and in the case of leasehold property, it would be prudent to inform the landlord or the management company of the recent change of ownership.
9. On completion of the sale, the seller’s solicitors will discharge the mortgage, settle the selling agent’s commission account, send the transfer and other relevant documents and transfer the net proceeds of sale to the seller.
A solicitor must at the inception of each transaction, give a prospective client a clear indication of its costs based on information known at the time. If necessary, this information should be continuously reviewed and updated as the transaction progresses since factors which were not previously known may arise or simply, the transaction may become more complex and/or protracted than was originally anticipated.
In straight forward residential transactions, it is not unusual for a solicitor to quote a fixed fee as a percentage of the purchase price.
In addition to payment of the fees, a seller will be liable for value added tax (presently 20%) as well as for any expenses or disbursements payable to third parties such as public and private bodies which have been incurred by your legal advisor on your behalf for example search fees or bank transfer fees.
It is not unusual for a solicitor to ask the client to make one or more payments on account of fees and disbursements at the outset of a transaction, this money will be held in a separate client account ledger as “money held on account of costs” This reflects not only the fact that quite sizeable costs might need to be incurred as a transaction progresses but also that the length of time between the receipt of the original instruction to act and completion of all aspects of the sale, can be many months.
Selling Agent’s costs
These costs are paid by the seller to the estate agent and can vary between 1% to 3% plus VAT of the sale price
Leasehold properties only – landlord’s/or managing agent’s costs
On sales of leasehold properties, the seller is obliged to obtain certain information regarding the property and the building/development in which the property is comprised, such as accounts, service charge and rent payments, and whether there is any current or anticipated expenditure in the building/development which may have a bearing on the purchase price. These charges can be anything between £200 – £400 plus VAT.
In addition, the landlord’s consent to sell the property may be required and the buyer would be obliged to enter into a document with the landlord. The landlord’s costs for obtaining consent are payable by the seller, and these can vary.
Instructing us – what do we require from you?
1. We will send you our letter of engagement before the transaction commences, which will detail the scope of the work which we will carry out for you together with our estimate of the costs and expenses in connection with the sale.
2. We will require you to complete and return to us the Law Society’s standard property information forms, including the Fittings and Contents Form, and to provide us with certain information, which will enable the transaction to proceed quickly:
- if the property has a mortgage, we will need to obtain a redemption statement to ascertain how much you currently owe the mortgage lender to see if there is enough equity in the property. We will therefore require your mortgage details and a letter of authority addressed to your mortgage lender (which we will prepare) authorising your lender to provide us with the redemption statement.
- if there is an adult occupier at the property who is over the age of seventeen, we will need their details. Such occupiers will need to agree to sign the contract, releasing any rights which they have in the property.
- in the case of a leasehold property, we will need the contact details of the managing agents, and the landlord to obtain a management pack from then.
© Miller Rosenfalck LLP January 2017