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February 2016

Question

We are interested in purchasing a property in Co Meath. We made an offer at the asking price and asked for a closing date in early 2016. We are not in any chain and our mortgage was approved just recently. The vendor wants to delay the date of payment and completion until August 2016 as they are waiting on their new build to be completed. They are suggesting water-tight contracts on both sides and a final move date that will be locked in, so no ongoing moving of the final date of completion out further.

What concerns would you have about this? I’m concerned about maintenance of the property and appliances as well as the fact the vendor is not inclined to take any less money even though we are accommodating them greatly.

Answer

I usually have a “no longer than six-month closure” rule for most property transactions, the main reason being that there are too many eventualities that can occur that might render one or other party unable to complete the transaction, despite their intention to do so at the time the deal is made.

There can be changes in personal circumstances, significant weather events such as we have had this winter that have a direct impact on the property, or significant changes in the property market. Loan approval can also be an issue that I’ll address specifically.

You have identified maintenance of the property and appliances as being issues of concern; however, none of these would concern me greatly.

You can arrange to have a condition report carried out on the property now, with detailed photographs that take particular note of the interior decor and a detailed inventory of any appliances included, as well as agreement that they are tested at the pre-closure inspection. It’s highly likely that you would redecorate just after you move in, so minor deterioration in decor should not be too great an issue. Once contracts are exchanged, there is a responsibility on the vendor to maintain the insurance on the property and I presume you would need to be informed of anything that might affect future insurance cover on the property.

My concern is any items that are outside of your control. The vendors are moving to a new house currently under construction. My experience is that there can be overruns in completion dates of new properties. While it is the intention of the vendors to move directly to the new house when completed, do they have a contingency in place in the event it doesn’t complete on time? It is also my experience that there can be overruns on completion dates, despite contracts being exchanged; so if you do agree to the extended date, your solicitor will need to commence the completion process well in advance of the proposed closing date to ensure the deadline is hit.

If you are purchasing with a mortgage, the new Central Bank macro prudential rules state that there must be a valuation of the property within two months of cheque drawdown. This is fine in a rising market, but if there is a decline in values between the original valuation (now) and the closing date (August 2016), this may have an effect on your mortgage. This scenario cannot be ruled out as one recent house price survey reported a decline of just over 6 per cent in Dublin city and county property values for 2015. Borrowers on the 80 per cent LTV limit will be affected in such a scenario. You also need to ensure that there are no adverse changes in your financial or employment circumstances in the intervening period which would have obvious knock-on effects on the mortgage.

Alternatively, if there is a significant upward movement in prices, there may well be an attempt by the vendor to renegotiate price – while signed and exchanged contracts should well be a sufficient antidote against this, it’s amazing what a motivating factor money can be.

The main advantage, of course is that you should be insulated against any increase in the property market that might occur in the meantime; and that’s where the pricing issue becomes a matter between you and the vendor. At the end of the day, both of you are making the call between agreeing the terms now or leaving it to chance later. For many, though, the benefit of certainty of the deal is the main attraction in such a scenario.

Edward Carey is a member of the Society of Chartered Surveyors Ireland, scsi.ie