This Blog Post appears as a chapter on Jon Charter Reid’s latest book called How to be a Smarter House Buyer which can be purchased on the followin Amazon link.
As a property solicitor I would urge everyone who wants to be a smart home buyer or seller to use professionals. This way they will avoid potential headaches and expensive costs if the legal work is not done effectively. I realise that surveyor and solicitor fees can be expensive and those on a budget might be tempted to cut costs. I would advise you against this action.
Jon Charters Reid is absolutely right when he recommends that smart home buyers should use local professionals such as solicitors, surveyors and estate agents, because there are idiosyncrasies to every area that only these experts will know of. This is particularly true when you are dealing with legal matters relating to property.
A local law firm may have dealt with a particular property multiple times and they can then go back and look at their previous records, previous searches and know about the previous ownership of land. This could be crucial and I can think of at least half a dozen properties that we, as a company, have dealt with advantageously given our local experience.
For instance, there's a property on the edge of one town that has been bought and sold six times in the last seven years and we have either acted for the buyer or the seller on each of those transactions. I mention this because when it was sold seven years ago, there were problems with the Land Registry as some parts of the land had not been properly registered. But, using our own internal knowledge and past records, we were able to piece together an accurate picture that made the process of selling the property so much easier!
Knowledge of the local area can be vital too. A remote agent or solicitor may not be aware that an area has had an awful lot of gypsum mined in it in the past, causing sink holes and risks to property in the area. And some areas (like Scarborough with its freehold flats) have very unusual aspects to their housing markets with particular legal idiosyncrasies for dealing with that issue.
There are a whole range of reasons why house buyers and sellers should use local professionals; they not only bring experience and expertise but also the convenience of being able to pop into their offices whenever necessary.
Sometimes it's important to see someone you are dealing with face-to-face and that's not always the case if your solicitor is sat hundreds of miles away.
So, what happens when your mortgage lender nominates a professional for you to use?
These are panel firms appointed by mortgage lenders, and whilst I cannot pick on any one firm and name them, my advice is to be very wary of using them. Generally speaking, these panel firms have been bargained with and their fees negotiated down to the lowest, cheapest common denominator by the bank concerned to ensure that every ounce of profit is screwed out of the transaction in favour of the bank itself.
Those costs and savings have to be met somewhere, for example by not using qualified experienced professionals. Another is to provide a less professional service and not to answer calls from clients and for the legal firm to 'streamline' the service which means the client will never get to speak with the same person twice.
This means the legal firm will commoditise the process so one person will deal with the initial part, and then pass the transaction onto a colleague who will then deal with the next stage and the transaction is passed along what is effectively a conveyor belt with an absence of consistent or reliable advice.
It is widely acknowledged within the legal sector that the level of service provided by these firms is, generally, poor. On more than one occasion we have had to unpick the work done by one of these panel-appointed 'conveyancing factories' because it appears they do not know what they are doing.
For instance, there may be a technical error in the legal title and there may be some problems with the legal aspects of the property that have generated an administrative mess; these require someone with some intelligence, education, background knowledge and legal expertise to resolve.
When dealing with some of these big 'factories', there may be just one qualified solicitor overseeing the work of perhaps 10 or even up to 50 people who are not qualified and not experienced. The firm undertaking this work is complying from a regulatory point of view but the question must be asked whether they are providing a quality service.
One thing you will rarely be told is that there is no legal requirement for you to appoint a solicitor for your conveyancing. You can do it yourself if you want. It will be difficult but it will not be impossible. Alternatively, you can also instruct a licensed conveyancer to do the work; they are specialists in this field and while they are not regulated by the SRA (the Solicitors Regulation Authority) they are still a regulated service so there are no problems when dealing with them.
Jon is absolutely right to draw your attention to the difference between a valuation and a proper survey. My firm’s website has a free download which explains the house buying process for buyers and sellers alike and within it we stress the importance of having a thorough survey done of the property.
But, frankly, anyone who has seen a valuation report will realise that they are mostly not worth the paper they are written on. It should be highlighted that the mortgage lender happily accepting a valuation is reliant upon the fact that solicitors, as well as surveyors and valuers, have got professional indemnity insurance.
During the last recession when mortgage repossessions went up, the mortgage lender took the keys back and put the property through an auction to sell at a rock bottom price to reclaim some of their money. If this process left them short of money, they would initially go out after the surveyor and then, secondly, they would go after the solicitor to make up the difference.
It's for this reason that solicitors pay the heaviest premiums for professional indemnity insurance of any of the professions in this country – more than doctors, dentists, architects and surveyors; it is a phenomenal expense.
Another issue we highlight in our download is not to ‘jump the gun’ ahead of the completion and exchange date. Compared to Scotland, the single biggest problem we have in this country is that nothing is binding from a legal point of view until the exchange of contracts has happened. That is generally three or four-weeks down the line from the buyer's offer being accepted by the sellers; and in the meantime, anything could happen.
For instance, something in the survey or the solicitor’s searches may lead the buyer to withdraw from the sale. In addition, the buyer's financial situation may change and they no longer can afford to buy the property or they no longer qualify for the mortgage criteria; there's a whole panoply of things that could go wrong. So until the exchange of contracts happens there is no guarantee whatsoever that you will legally get that property.
Smart house buying means being ruled by your head, not your heart. It’s easy to say but difficult in the moment. Let's be honest, if you are buyer of a property and you make an offer then you have, in your own mind, effectively moved into the property. You have already decided where you are putting the furniture, what colour you are going to paint the living room and you can see yourself in that beautiful roll-top bath. I know what it's like and I've done it myself; and in your mind as the buyer your mortgage lender, your financial adviser, the surveyor, and, worst of all, your solicitor are all standing in the way of your moving into your house. The crucial thing is to remember that it is not yet your house.
I also warn house buyers not to expect the keys to their new property at 9am on completion day. Many try to insist that they get the keys at this time, but there are still various transactions to complete on the day of completion. This means that they will generally not get the keys until 2pm when the seller's solicitors confirms receipt of the money in their account. Should the money not arrive with the solicitors by 2pm you will then, legally, be deemed to have completed on the next following working day. Obviously, through experience there is a bit of give and take and a practical approach is used to ensure that the deadline is met with and the buyer gets the keys.
On the other hand, in many cases the seller has had the removals van at their property at 8am and by 10am they have an empty property; and if the money has already arrived in the seller's bank account there’s no reason why they can't release the keys to the buyer. I have had many instances of the keys being handed into the estate agents on the day before completion and the buyer has moved into rented accommodation or emigrated.
Generally speaking, the only things that could go wrong on completion date is for there to be a glitch in the banking system; the CHAPS system could go down, but there's nothing we can do because this is out of our hands.
My first piece of advice for anyone wanting to be a smarter property buyer is to get your mortgage agreed in principle before you even begin looking for a property. It's also important that you know your financial limits and do further research as to which solicitors you should use; research online and read reviews if necessary.
It's also important to shop around before engaging the services of a professional. Although this service can be expensive I would advise not to simply choose the cheapest service being offered. Essentially, I believe in the old adage that if you buy cheap, you will buy twice. It could also pay dividends to engage in a professional who is operating locally.
Word-of-mouth recommendations are important, particularly from family and friends, but I would be wary of an estate agent making a recommendation for a professional's services. That's not to say you should not listen to them because small, independent local estate agents will generally know who is good locally and who works hard with them. However, everyone should be smart and appreciate that there may be a financial incentive for one professional to recommend the services of another.
For anyone who thinks this may be difficult to find out they should be aware that if the estate agent and solicitor are complying fully with the rules then this referral fee will be declared in the terms and conditions of the solicitor. If it is not, either the solicitor or the estate agent or both are not complying with their necessary regulations.
I am not knocking the services of the solicitor who has been recommended on the basis of a referral fee. It does not mean that the solicitor's services will be shoddy or slapdash; it is simply another route to market that solicitor’s services in order to generate business. It is important to appreciate too that this way of generating work is not that much different from firms advertising on Google and many people don't realise when they click on a link that they are clicking on an advert.
From speaking with Jon about his book, one of the issues I strongly agree about is the problem of people disputing how much professional fees cost. We now live in a world where we will go out and queue for several hours outside the Apple shop to pay £600 or £700 for a telephone. But when it comes to buying professional services such as a surveys or legal help, we do not appear as a society to value these in the way that we should. We need to move away from thinking of professional help as a cost or expense and see it for what it is – peace of mind.
People need to appreciate that when they engage a solicitor to help them buy a property they are using their expertise in helping to avoid a potential purchase that's got pitfalls and problems. The buyer needs the peace of mind that they have the full legal title to the property, that everything is in good working order and is not about to collapse or be repossessed, and that no one is about to build a motorway alongside it.
For most people, a house is the most important and expensive purchase they will make in their lifetime and they need to do this in an informed and educated way. The vast majority of homebuyers do not have the information or education that solicitors and surveyors have; and they should remember that professional fees represent the same overheads as any other business as well as the reliable expertise you need.
To me, that is a price worth paying as it will help avoid the potential expensive problems that come from not doing the legal side properly or effectively when buying or selling property.