We’ve done it – we bought a house in England. The process is different than buying a house in the US – all the same pieces of the transaction are there, but they are done in a different order. In this post I will outline the steps we went through for buying a house in England. (Apparently it is different if buying in Scotland.)
This is my personal experience comparing buying a house in the US with buying a house in England. Your mileage may vary. Edited Feb 23 to correct some mistakes! Thanks to Chris for pointing them out.
First, some terms.
- In the US you deal with real estate agents, or realtors. In the UK they are called estate agents.
- In the US we hire a lawyer, in the UK a solicitor.
- In the US a survey is a drawing that shows you the property boundaries. In the UK they are not as obsessed with property boundaries because the existing fences and walls show them.
- What we call a house inspection in the US is called a survey in the UK.
Now, let’s buy a house.
Start phoning estate agents to see properties
In the US, as a buyer, you pick out a realtor to help you buy a house. They help you figure out what neighborhood you want, what type of house you want. They research the market and send you lists of properties for sale. They don’t show you just the properties they represent, or their company represents, they show you all properties for sale. They drive you around looking at houses. They offer opinions. Your realtor may spend months working with you to find a house.
Once you have found the house, your realtor prepares the paperwork for making an offer. They represent you to the seller. They coordinate all the inspections you do on the house and are there for the closing. Then they take you out for an expensive dinner to congratulate you on making the purchase.
For this effort, the seller pays a 6% commission on the selling price and your realtor and his/her company splits the commission with the seller’s realtor. On a $500,000 house this commission is $30,000 and is paid by the seller.
In the UK the estate agent represents the seller who pays a 1.6% commission for the estate agent to sell their house (that is an average – the percentage varies) and the buyer is on their own. You figure out where you want to live and what type of house you want. You comb the listings on rightmove.co.uk (the UK multiple listing website). If you want to see a property, you phone the agent representing the house and book an appointment.
Offer to purchase the house
Just like on the TV program “Location, Location, Location” when you decide you want to buy a house, the real estate agent showing you the house (who represents the seller, not you!) phones the seller and tells them your offer. All the offers and counter-offers are done verbally. Nothing is in writing.
This is the opposite of the lengthy paperwork you do in the US to put in an offer. The upside is that it is easy. The downside is that nothing is legally binding until the exchange of contracts which can be over two months away.
In the US the buyer can back out of the deal if the contingencies defined in the offer are not met to their satisfaction. These are usually the inspection and the appraisal, but there may be others. But, if the buyer does not choose to back out or re-negotiate the price, the seller has to sell them the property. In the US the buyer pays “earnest money” when making the offer. In the past we have paid $10,000 earnest money. If the buyer walks away after the contingencies have been accepted, the seller can keep that money.
Engage a solicitor
You’ve come to an agreement on price with the seller. Now the buyer engages a solicitor to do the conveyancing transaction (i.e. the purchase of the house). The seller also has a solicitor. From now on the estate agent is only called when access to the house is needed. The buyer and seller communicate through their solicitors.
Start the searches and inspections
During this time there is correspondence between the buyer’s solicitor and the seller’s. The first thing we received from the seller was lists of what is included in the sale (Fittings and Contents Form, Property Information Form, Overriding Interests) and title documents.
In the US you see these forms before you make your offer. Since we had not seen these forms in the beginning, the first thing I did was send our solicitor a list of questions which the buyer patiently answered, only for me to be given these forms a week later with all the information I had asked about.
Our solicitor started the search with the county. This is the item that takes the longest. Staff at the local council research the property to make sure it has clear title on the Land Register. In the US this is done by the title company, at the end of the process. Our solicitor also did searches with the local water/sewer company to make sure everything was set up correctly.
My favorite was the Chancel Check done by our solicitor. The local church may have the right to assess houses for funds to repair the church. Our property was clear.
The buyer arranges the survey of the house – what we call an inspection in the US. We had a local company send someone out and he spent a few hours looking at everything in the house, then he gave us a detailed report showing any problems. He also works as an appraiser and gave us his opinion on what the property is worth.
At this point, similar to the process in the US, you can renegotiate the price if there are large maintenance items. They don’t seem to be as fussy as people are in the US, where buyers get sellers to fix every little thing that may be wrong in the house.
Wait and hope you are not gazumped
Everything is done except the search by the county. We wait. In our part of Dorset it takes 10 – 12 weeks to be completed.
Gazump Definition of gazump in English: verb [with object] British informal
1 Make a higher offer for a house than (someone whose offer has already been accepted by the seller) and thus succeed in acquiring the property: the trio are fuming after they were gazumped by a property speculator (as noun gazumping) gazumping has returned, as there is a shortage of good properties
Oxford English Dictionary
The only document you have signed is to engage your solicitor. You are not legally bound to purchase the house. You have not put any money down. The seller is not legally bound either. No formal agreement has been signed between buyer and seller. Nothing is signed until the buyer has done all the required searches and inspections. This can take months.
During that time, someone can come along and offer a better price for the house. If the seller accepts the other offer – you have been gazumped. Start looking at properties again.
I’ve been told this does not happen often where we are in Dorset. I don’t know many people here and I know one person who was gazumped, so it happens.
Exchange of contracts
This is it, a legal commitment. The buyer signs, the seller signs. They have agreed on a price. They decide on the date when the house transfers from seller to buyer (completion). The buyer sends a 10% deposit to their solicitor and this is sent on to the seller.
We had our offer accepted in mid-November, but did not “exchange contracts” until the end of January.
In the US we call it the closing, in the UK it is the completion. The buyer transfers the rest of the money to their solicitor (or gets a mortgage company involved). The seller gives the keys to the estate agent. The buyer sees the estate agent again! And gets the keys. Somewhere the Land Registry is updated. The house is yours.
The completion date is negotiated between seller and buyer. If either party is involved in a chain, it gets confusing. A chain means that a buyer has to sell their property before they can complete the purchase, or the seller has to buy a new property before they can complete. This can stretch on through a large number of transactions. If it takes so long that prices have risen (prices only seem to go up, up, up in the UK), the seller may come back to the buyer to negotiate a higher price!
We were not in a chain. We sold our house in the US several months ago and were ready to buy. Our sale was not dependent on the seller buying another house.
What does it all cost?
Let’s look at the costs for purchasing a £350,000 house (at $1.50 per GBP, that is $525,000 USD). Our legal fees were around £1,000. The cost for the county search was £200. The cost of the survey was £450.
Not so bad – but the buyer also pays sales tax on a house purchase! It is called Stamp Duty Land Tax and it changes based on the cost of the house. Using the government calculator, the stamp duty is £7,500. If you are purchasing a second home or a home you plan on renting out (buy to let), as of April 1 2016 the stamp duty is an extra 3%.
Your £350,000 house costs £359,150.
In conclusion, you can see the parts of the transaction are the same as in the US. It all seemed a mystery to me before, but it is just that the terms are different and you do all your searches and inspections before making a legal commitment. Now we get to find out what home ownership is like here!