7 July, 2015
Understanding all the terms in the house-buying process can be confusing and daunting, especially for first time buyers. The sold subject to contract stage is one of the longer phases in the house buying process and comes wrought with anxiety for all parties.
Once an offer has been accepted by the seller, then the property is sold subject to contract (STC). This means that although the offer has been accepted, the paperwork is not yet complete. No money will have changed hands yet, so nothing is legally binding and the price can still be negotiated.
The house buying process can still fall through when STC; whether it's due to issues flagged by the valuation survey, or the buyer - or seller - changing their minds. In fact on average, around 25 per cent of home sales fail to complete.
Gazumping - the lurking threat
If you find a property that you love that is sold subject to contract, there is nothing to prevent you calling up the estate agent to discuss the property and strength of the offer. This means you can be kept on file by the agent and will be the first in line should the process fall through. Depending on the property owner - and the agent - there is also the opportunity to go in with a higher offer at this stage - unethical and frowned upon, but not illegal.
Should a higher offer be made, the agent is legally obliged to inform the seller of this. If the seller were to accept this higher offer, then the buyer will have lost money on fees, particularly if it happens after the surveys and searches have taken place. This unfortunate practice is more prevalent in a seller's market, where there are plenty more buyers in the pond, meaning the seller can call all the shots.
As a buyer there are steps you can take to minimise the risk and discourage potential interest. You should insist that the house is taken off the market once the offer has been accepted. Check that any advertisements online, both on the agent's website and on property portals state 'Sold' or 'Sold subject to contract' - and that the board outside the house has been updated to 'Sold'. Speak to the estate agent immediately if it hasn't been updated.
There is insurance which can be taken out to protect you financially should the deal fall through. Alternatively, if you are particularly worried a solicitor can draw up an exclusivity agreement for a fee; this ensures that as long as contracts are exchanged within a specific time frame then the house is yours.
Protection from potential SSTC issues
The freedom within the subject to contract stage goes both ways. Whilst it works for the seller, it also protects the buyer should any potential concerns be flagged in the survey; for example structural concerns or damp. It gives the opportunity for the buyer to negotiate this into the price of the property, or easily withdraw from the sale if the issues are insurmountable.
In Scotland there is no STC stage, meaning all offers are legally binding if accepted. A Home Report must be available to view once the property goes on the market; this includes all of the home surveys and background checks.
The STC stage ends once the final contract has been signed and exchanged, and the deposit paid. At this point the deal is legally binding, so anyone that pulls out would incur large fees - meaning it's highly unlikely.