House Sale Fallen Through?
Even when market conditions are stable, one third of house sales fall through in England and Wales. A big part of the problem is the inefficient private treaty (estate agent) method of sale, where offers are not legally binding until exchange of contracts. The rules at auction are different – sales do NOT fall through at auction.
This article is designed to help homeowners who are selling with an estate agent and are experiencing a delay with the sale of their property, or for property sellers who have received the unfortunate news of their house sale falling through. The article contains tips on what steps to take when your property sale falls through and offers some suggestions of alternative approaches for a more reliable method sale, such as selling by auction.
Updated by Mark Grantham on 21st August 2020
🔲 Estate agency sale V’s auction sale – When selling with an estate agent there’s a risk that your house sale will fall through. Accepting an offer and instructing solicitors is just the start of negotiations, the buyer can back out of the sale or reduce their offer at any time up to formal exchange of contracts (after the survey and completion of legal enquiries, when the buyer has paid their 10% deposit, solicitors have formally exchanged contracts and agreed a date for completion of sale). An auction sale is very different; contracts are legally exchanged on auction day and the buyer pays a 10% deposit. With an auction sale, sold means sold, the buyer cannot back out of the sale or reduce their offer.
There are no guarantees when selling with an estate agent. According a study by Which magazine, in June 2016 as many as 3 out of 10 people have experienced a house sale fall through. A similar study carried out by the Post Office in 2018 found more than a third of sales fall through. And when there’s a shortage of buyers in the market due to fears of a downturn or issues such as COVID-19 and Brexit, the fall through rate is at its highest.
The reason why so many sales fall through is because offers are not legally binding with private treaty (estate agency) sales. The system is different in other countries and despite some talk of changes to the process and the introduction of voluntary reservation agreements, the process for selling houses in England and Wales remains inefficient and frustrating for many home sellers.
Estate agency sales are very unreliable; when a prospective buyer makes an offer to purchase your property, they are not legally committed to their purchase until exchange of contracts. Even if both the buyer and the seller have signed contracts and the buyer has transferred a 10% deposit to their solicitor, the sale is not legally binding until both parties’ solicitors have formally executed exchange of contracts. Until that time, the seller has to sit and wait, keeping their fingers crossed that everything goes according to plan. The usual reasons given for a sale falling through are:
🔲 Survey – Buyers often get cold feet if their survey report highlights problems e.g the need for extensive repairs. TIP: It can be a good idea to alert prospective buyers to any known issues as early as possible, to avoid wasting time later in the process.
🔲 Broken chain – The majority of house movers are part of a chain i.e. the buyer will have to sell their own home before buying yours. If the sale of your buyers property falls through, the failed sale will affect all buyers and sellers in that chain. TIP: If your estate agent presents you with a choice of offers it’s worth considering a short chain, or even better, a first-time buyer, over a buyer with a long chain even if their offer is higher.
🔲 Mortgage – It’s always a good idea to make sure your prospective buyer has been offered a “decision in principal” from their mortgage lender, if they don’t have that, then it’s another hurdle later down the line.
🔲 Solicitors – Sometimes solicitors are blamed for taking too long. But it’s important to remember the job of a conveyancing solicitor is not easy, there’s a lot of work involved. And with modern issues such as property fraud and an increase in litigation from dissatisfied buyers and sellers, a good solicitor will make sure there’s no room for error.
🔲 Change of circumstances – Life can be unpredictable; if the buyer has a change of employment for example, they might have to reconsider their purchase.
🔲 Change of mind – Your buyer might simply change their mind. The idea to move house a few months ago, might just not appeal in the same way as it did before.
🔲 Gazundering – In a buyer’s market it’s not unusual to expect a reduced offer, typically just a few days before exchange. Sometimes buyers have a valid reason for reducing their offer, but sometimes not. If you can’t afford to accept a reduced offer then unfortunately the sale will fall through.
🔲 Market conditions – National issues such as Brexit or the fear of an impending recession cause property markets to stagnate as buyers hold fire on any big plans. And even local conditions e.g. too many similar properties on the market for sale in the local area will make selling difficult. In these situations, sellers either have to wait it out, consider reducing their asking price, or look at other methods of sale.
🔲 Communicate with your solicitor – You’re more likely to get a truer picture of what’s going on if you talk to your solicitor rather than your estate agent. If your solicitor hasn’t heard from the buyers solicitor recently then it’s a sign that progress has come to a halt.
🔲 Know the process – Read around the subject of property conveyancing, check out blogs or buy a guide to conveyancing, that will help you better understand what’s involved, rather than having to assume whatever your solicitor and estate agent are telling you is correct.
🔲 Talk to the buyer – If you’re not seeing any progress with the sale, ask your estate agent if the buyer is prepared to talk to you directly to discuss the sale. If they’re not prepared to talk to you, then perhaps it’s time to move on to new buyer?
If the purchase of your next property is dependent on the sale of your current property, the news of a collapsed sale will obviously disappoint the owner of the property you’re planning to buy from. But consider their situation too. The owner of the property you’re buying from will know you’re keen to purchase their property, so will usually give you additional time to find a buyer, as long as they know you’re taking things seriously. Otherwise they’re back at square one as well, needing to find a new buyer.
TIP: When house sales fall through, estate agents often suggest reducing the asking price of a property to quickly generate interest from prospective buyers, which can seem like the right thing to do if you need to speed up the search for a new buyer. And whilst sometimes this can be effective, it’s usually worth re-marketing the property for a month or so at the initial asking price and judging the level of interest, before considering a price reduction.
The next section provides some suggestions on how to recover from a house sale that’s fallen through.
If you choose to continue selling with an estate agent, when attempting to sell second time around there’s usually an increased sense of urgency to find a new buyer. But it’s worth taking a few days to consider your options. Accepting an offer from the first person to make a reasonable offer could spell for another round of disappointment. Consider the reason for the sale falling through; was it the fault of the buyer? A problem with the property? Or a mixture of both? Take these steps to reduce the risk of the sale falling through again.
🔲 Request a deposit – the best way to determine if your buyer is serious about their offer amount is to request a small non-refundable deposit (paid by the buyer to your solicitor). Even if it’s just £200. In doing so you will agree with the buyer a date to reach exchange of contracts at the agreed price. That’s fair and simple! If the buyer makes a fuss about that you should question if they’re serious about their offer amount!? It’s a good test to see if you have a serious and credible buyer. Don’t just take their word for it!
🔲 Check the buyer’s finances – Good estate agents carry out detailed assessments of a buyers “proceed-ability” – checking they have everything in place to complete their purchase. Money is the most important requirement! Before accepting an offer, you can ask to see proof of funds e.g. a bank statement as proof of deposit and a decision in principle from their mortgage company. For privacy reasons the buyer might not allow you to see their documents, but you can request for your estate agent to forward copies to your solicitor instead.
🔲 Look for a chain-free buyer – Most of the time property chains involve just two or three buyers and sellers. The longer the chain, the more likely it is a sale will fall through – it takes one buyer to change their mind for the entire chain of sales to fall through. First-time buyers don’t have a property to sell so will be chain free, and that improves the likelihood of a successful sale.
🔲 Make sure the buyer does their survey and searches early – The majority of price drops come soon after the buyer receives their survey report. Almost all survey reports will identify some issues with a property, and these can be used by the buyer to reduce their offer amount. It’s not unusual for buyers to hold off instructing the survey until very late in the process. To some extent this is understandable; a buyer would rather know everything else relating to their purchase is in order before committing to spend hundreds (sometimes thousands) of pounds on a survey. The buyer will also need to obtain searches at some point before exchange of contracts (usually a local authority search, environmental search and water and drainage search). Searches will cost the buyer £300+, so knowing they have paid for searches is a good sign.
🔲 Agree deadlines – Having a final target date for completion of sale gives buyers, sellers, estate agents and solicitors something to work towards. It’s also a good idea to have intermediate target dates for things like the buyer’s survey and legal enquiries.
🔲 Monitor progress – Keeping an eye on the buyer’s position will alert you to the possibility of a sale falling through, sooner rather than later. For example, if your buyers mortgage application has been rejected from several different lenders, it might be an idea to move on to a different buyer. And this time find a buyer who has been pre-qualified for mortgage lending. It’s incredible how many sales stall for weeks or months, just because no one has been chasing up solicitors. Checking progress against deadlines will keep the sale moving ahead.
🔲 Group email – When everyone involved in the transaction is kept in the loop, it ensures enquiries are responded to quickly. So setting up a “reply all” email dialogue including all parties of the transaction will help with that. Not all enquiries need to be included in the group email, but it can be useful to have a weekly progress check, to help the sale move ahead faster.
🔲 Voluntary reservation agreement – These are designed to reduce the risk of a sale falling through by stopping buyers and sellers from accepting higher offers from other parties. In practice they’re more useful for buyers, and not particularly effective for sellers.
🔲 Change estate agents – If your previous sale fell through because your estate agent wasn’t chasing up the buyer and on top of things, then consider changing estate agents. Good estate agents have an in house “progress chaser” which can really help keep the sale moving.
🔲 Contract race – If you’re in a hurry to sell, tell your estate agent that you’re open to a contract race. This involves having two or more buyer’s “race” against each other to exchange contracts. More work is involved from your solicitor because they will be corresponding with more buyers, so the cost will be higher. And some buyers won’t like the idea of putting in the work without the assurance of a sale at the end of it.
🔲 Have a backup plan – Rather than pinning your hopes on just one buyer, have a back-up plan. If your sale falls through you will have some options ready to make some progress with. A back up plan will also provide you with some leverage if your buyer tries to negotiate a price reduction. Instead of feeling backed into a corner with just one option, you will be able to hold up to negotiations knowing you have other options.
Some properties simply aren’t suited to a private treaty (estate agent) method of sale, and it can take a failed sale to realise that. For example, properties in poor condition are better suited to an auction sale for a whole range of reasons. It’s worth considering these alternative approaches if you need a reliable sale.
🔲 Auction sale – Sales don’t fall through at auction. The winning bidder on auction day legally exchanges contracts and pays a 10% deposit, with completion usually within 28 days. Rather than relying on one buyer as you would with a normal estate agency sale, with auction multiple bidders compete to purchase your property. Any property can be sold at auction, and for properties in need of modernisation, sale prices achieved at auction are typically higher than an estate agent would be able to achieve. And for properties in good condition it’s also worth considering modern auction, it’s often referred to as a very efficient version of an estate agency sale – sales don’t fall through because the property is continually marketed until exchange of contracts.
🔲 Direct sale – If you’re looking for a quick and reliable sale, then it’s worth considering the services of a homebuyer company. Sales are chain-free and you’re dealing with a trade buyer who won’t change their mind or back out of the sale over minor issues, as an end-user might. Be careful, a lot of companies don’t actually purchase direct but will act as a broker, which can end up being a complete waste of time. One easy way to tell if the company is a broker is if they ask you to sign anything. With a direct sale you shouldn’t have to sign anything, expect of course the contract of sale which will be provided to you by your solicitor.
🔲 Bridging loan – We wouldn’t usually suggest a bridging loan as a good idea, unless there are exceptional circumstances. Bridging loans are very high interest, short terms loans. If your buyer has fallen through, then you can continue with the purchase of your next property by getting a bridging loan which can be paid off as soon as you sell your property. The danger is, if you don’t manage to sell your home the interest payments and penalty charges can be very high. So take professional advice before going down this route!
And if you don’t need to sell immediately, it might be a better idea to wait. Possibly making some changes to improve the property’s saleability or rent the property and receive an income before market conditions improve.
We’ve provided answers to some of your frequently asked questions relating to house sales falling through.
No, sales can’t fall through after exchange of contracts. Once you have exchanged contracts you have entered into a legally binding contract. Nether the buyer or the seller can back out of the sale.
Sales can fall through at any stage up to the point of exchange of contracts.
Most solicitors will charge for an “aborted sale” to cover their time and expenses. But usually won’t charge the full amount as they would if the sale had successfully completed.
There’s no statistic on record, but the it’s fair to say that if a sale is going to fall through, it’s more likely to happen after the survey than at any other point in the process.
If you have arranged a mortgage for your onward move and your sale falls through you will usually have some time before your mortgage expires. Mortgage offers are typically valid for 3 months, but in some cases valid for up to 6 months.
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