Legal spiel - how to talk the talk
What is the difference between a survey and a valuation? When is a contract binding? Legal expert John Duggan translates the jargon
For first-time buyers, the process of buying your own home can be daunting and seems to come with a language all of its own. From dealing with estate agents, to lodging deposits and securing letters of loan offers, it's a complex maze. Here we untangle the terms:
Who does the estate agent act for?
Remember that the estate agent, or auctioneer, is the seller's agent, not your agent. He or she has very limited obligations towards you, the buyer. Therefore, do not be too revealing in your conversations with him or her, particularly about how much money you have to spend or are prepared to spend.
What is a booking deposit?
It is usual to pay a booking deposit to the estate agent when your offer for the property has been accepted by the seller. This is an indication of your bona fides. Depending on the price of the property, this should amount to no more than a few thousand euro, certainly not more than 5pc of the price. Conveniently, it also serves as a fund out of which the estate agent can pay his or her fee when the sale has been completed. The booking deposit is refundable at any time up until the contracts are signed if you change your mind about buying property for any reason. The booking deposit is credited against the 10pc deposit payable on the signing of the contract.
Is it different from your 10pc deposit?
A deposit of 10pc of the purchase price is payable when you sign the contract (see below). This is payable, and has to be funded up front, by you, irrespective of where the money to buy the property is coming from. So, if none of the money to pay for the property is coming from your own savings, and some of it is coming from some other source, such as a Credit Union loan, the 10pc still has to be provided by you on signing the contract whether or not those funds are available at that time.
Survey vs Valuation
Bizarrely, even though the purchase of a house is probably the single biggest expenditure a person can make, there is practically no consumer protection for the buyer of a house, unlike, say, the buyer of a car or vacuum cleaner. This is usually expressed by the Latin phrase caveat emptor which translates as 'let the buyer beware'. So, if you find that there is a structural defect after the sale, you don't usually have a comeback against the seller.
As a result, you should have a comprehensive survey carried out by a qualified architect, engineer or chartered surveyor. If possible accompany them on the survey. While a surveyor can't see what is behind the plaster on the walls or beneath floorboards, he or she will have techniques and equipment for spotting indications of defects in parts of the property that are covered up. If the survey raises issues of concern, there may need to be further expenditure on specialist investigations. This survey is not to be confused with a valuation. Your bank will either carry out its own valuation or ask you to provide a valuation. This is just a valuation, ie, an indication of the value of the property, and does not serve as a survey.
Why a survey for new homes is different
If you are buying a house which is in the course of construction or has just been finished, you are effectively buying "off the plans". This is because the structure has not settled down and any defects have not begun to reveal themselves. In this case, the task of your surveyor will be to look over the drawings and specifications based on which the house has been or is to be constructed in order to check that they properly provide for sound construction.
Your surveyor will also do a snag list just before you pay for the property and take possession. This deals with superficial items only, such as finishes, etc. Over and above what is set out in the drawings and specifications, the builder will have a statutory obligation to complete the dwelling in accordance with the building regulations. However, this has been cold comfort for those who bought properties in places such as Priory Hall or those who have been affected by pyrite.
If you're buying an apartment …
When you buy an apartment, whether new or second-hand, you are effectively buying a block of space in an apartment block, surrounded by a skin of plaster, wood and glass. Everything beyond the plaster on the walls, beneath the floorboards and above the ceiling belongs to the management company. Therefore the parts of the property for which you have direct responsibility for repair or, indeed, can repair are limited.
However, you have an indirect liability for repairs to the entire apartment block by virtue of your service charge contributions. While the scope for doing so is limited, your surveyor should consider the soundness of the entire apartment block in carrying out the survey, as any defects will ultimately have to be paid for by you. Apartment owners in the Beacon South Quarter, for example, may be faced with a bill of €10m or more to fix structural defects and address fire-safety deficiencies.
When is a contract binding?
When the estate agent tells you that the seller has accepted your offer, the property is generally regarded as being sold. However, there is no legally binding contract until a written contract is signed by both the seller and the buyer. Until that time comes, technically you are still negotiating and either side can pull out for any reason.
When your offer is accepted, the estate agent will inform both your solicitor and the seller's solicitor in writing of the details of the sale. The seller's solicitor will send a draft contract and copies of the title documents to your solicitor. Once you sign this contract, in duplicate, and your solicitor sends both copies back to the seller's solicitor, with the deposit, you have committed yourself to purchasing the property. The seller's solicitor sends back one of the contracts signed by the seller to your solicitor and it is only then that you have a legally binding contract.
Obviously, you can't do any of this until your surveyor tells you that the property is sound and free from defects and you know where the money to buy the property is coming from, ie, you have a letter of loan offer from a bank.
What is a letter of loan offer?
Before the signed contracts and deposit are returned to the seller's solicitors, you should check with the bank that all of the conditions in the letter of loan offer have been or can be complied with. For instance, there will be a requirement in the letter of loan offer to take out a life policy for the amount of the loan (a mortgage protection policy). This policy should be in place or 'on risk'. If you have a pre-existing medical condition or engage in dangerous sports or activities, it will take longer than usual to put that policy in place. If you leave it until after you have signed the contracts, and cover is refused by the insurers, you will not be able to get your loan cheque and complete the purchase. You could then be sued for damages for breach of contract and you would lose your deposit. Similarly, if there is any delay in obtaining cover, it will delay your loan cheque and result in you having to pay interest.
- John Duggan is property and conveyancing law specialist with Callan Tansey Solicitors