Pull out or lower offer?

[christine2001]

We offered on a house 2 months ago (700k - we offered the asking price despite it being really top of our budget as we fell in love with it immediately). The seller is in a huge rush to complete since he is in a chain and his previous buyer couldn't get a mortgage agreed. Everything has been going smoothly but now we found out that the actual service charge of the property is double what was communicated to us by the agent (the number they had given us is actually the bi-annual SC and not the annual). The actual SC is very high for what is offered (nice grounds but not gated).
Should we pull out or adjust our offer in a way that our monthly outgoings remain the same (around 30k less)? 30k is of course a HUGE reduction is there even a likelihood that it could pass? We really don't want to stretch ourselves more and are also concerned that with such a high SC the house will be difficult to resell later on...

Be honest and see what the vendors want to do.

Could you just confirm the actual annual SC please

Unless the property is exceptional, I think I would pull out. You’ll be stuck with the service charge forever and it might make it harder to sell.

@AnotherOldGeezer The actual annual SC is 2400. A lot of money to be in an non-gated development...
The agent told us it was 1200, they had even confirmed it by email. By the time we will want to resell, it will probably be more. We are worried that it will put people off when we want to resell.

Not sure I would even buy a property with a service charge. They can be quite difficult to sell.

Well I wouldn’t accept a £30k drop. Maybe meet you half way if I was desperate.

It's a 4% drop. Not insane in the scheme of things and it shouldn't create ill will/an emotional rejection because it is clear how this situation has arisen and it's not your fault. I would do that. Communicate through the solicitors rather than the agents of course, who will have an interest in spinning the reasoning to get themselves out of hot water. Good luck OP.

[quote christine2001]@AnotherOldGeezer The actual annual SC is 2400. A lot of money to be in an non-gated development...
The agent told us it was 1200, they had even confirmed it by email. By the time we will want to resell, it will probably be more. We are worried that it will put people off when we want to resell.[/quote]

That's a massive error on the agent's part.

They have mislead you, and If you do choose to pull out, both you and the seller would have a strong case to sue the agent for monies lost. Most agents don't share this sort of info directly without a caveat, et: we have been told by the vendors that the SC / remaining lease is XYZ but we advise potential buyers to make their own enquires... type thing.

Service charges are obvs not uncommon on leasehold proprieties.

What you need to consider are:

1. Is this service charge appropriate and comparable with similar properties

1. Can you afford it on top of other costs?

1. What do the recent service company accounts look like (is there something big coming up / just gone?)

1. Do you want a property with a service charge?

1. Will it lower your investment return / make it harder to resell.

It might not be an automatic no but you do need to be clear what you're taking on.

Some very good points made

If you’re stretched, you could argue for regarding this as a cost like an annuity.

£24K if 5%, £30K if 4%

Very broad brush - but £1200 pa for evermore is a hell of a cost

Wouldn’t be U to pull out or reduce your offer. For planning purposes would assume charges will increase in future.

Agree that service charges will put off many buyers.

Do you have options for properties without service charges?

@Elbie79 That's great advice thank you. We will definitely communicate via the solicitors, especially as the agent has questionable bedside manners.

@DontDrinkDontSmokeWhatDoIDo We couldn't quite believe it either when the solicitor brought this up and forwarded the management pack to back it up. The agent even sent us the wrong SC by email, without any caveat whatsoever.

It's a freehold property but as it comes with nice landscaped communal grounds there is a SC to it. 1200 was an amount we were just about willing to pay for it but 2400 is obviously a very different story and we are now a bit lost with regards to what to do.

All the feedback here is super helpful for us.

@AnotherOldGeezer Thank you. I'm not quite sure if I follow you calculation of the annuity rate, can you explain?

An extra 1200 pa is definitely a huge amount. I really wish we weren't in this terrible situation so far in to the buying process.

I would pull out, especially since it was at the top of your budget to begin with. It's not good to be house poor.

It's horrible when house purchases go off the rails, OP. Hopefully you aren't too far along?

Ultimately it depends on what you want and can afford.

A freehold property with an ongoing service charge makes it unusual, and unusual typically limits the size of the resale market. Doesn't mean you won't be able to resell but you need to consider other people having the same reaction that you have.

maybe this is a sought after enclave that is very popular, and people would pay SC for the beautiful grounds?

And extra £200 per month for grounds maintenance is quite steep.

That said, people who live in private / unadopted roads often have to pay for road resurfacing etc.

Do update the thread if you can - I'd be really interested in how you get on.

I forgot to answer your original question!!

The Estate Agent contract is with the seller.

If you are still keen to proceed, I would ask your solicitors to contact the buyers solicitor and inform them of the EAs misinformation and the affect it's had on your purchase.

You solicitor can then ask for a reduction in price as a result of the increased charges.

If I were your seller and needed to proceed, I would consider a small reduction of say, £5k - covers 5 years additional SC - but you may get more, I don't know.

As the seller, I would then negotiate a significant reduction in agents fees to offset my losses.

In many financial situations, it can be very hard to think rationally and get a handle on the value of something. People generally undervalue future sums

Let's say I gave you some money and you paid me £1,200 per annum indefinitely - an annuity. This is your extra cost - either fixed or going up with say RPI

Now if you go on the Hargreaves Lansdown website (I don't use them but they have loads of information) you will see that paying this sum for the longest period (a 55 year old man until he dies) you would get a rate of 3.8% for a fixed amount, or 1.7% based on RPI increases

This would equate to values of £31K and £70K respectively. And indicates why people stuck with "fleecehold" properties are having such problems

So I was using rates of 4% or 5% to give you a potential starting point to get your head round the additional cost

I don't suggest you use the word "annuity" to the sellers and I recognise that you are getting something for your money, but it does put a value on the extent to which you were misled. If it were me I would see £12K - £15K off as an excellent result

But the vendors are unlikely to view this rationally ...

@Dozer We have viewed a few properties w/o SC but this one initially stood out and the communicated SC seemed manageable. The actual SC not so much anymore. Would you advise to pull out and start all over our search?

@DontDrinkDontSmokeWhatDoIDo We are 2 months in the process... we will make a decision next week and will definitely let you know how things would have progressed

@AnotherOldGeezer Thanks - All clear now - very good points... more food for thoughts

In your shoes, with other decent options, would pull out, yes, but I regard ‘fleecehold’ / service charges to be a massive disadvantage and didn’t even view such properties, so am biased!

That's quite a lot of SC.
Have had a property on an estate not gated but with nice communal grounds. SC was £400 p/a though will probably go up as there is some work to be done on communal roads but nowhere near to that amount.

Houses range from £340k to £750k.

Things to check.
Who owns the freehold of the communal ground?
Are there any restrictions on the changes you can do to the exterior of the house and so you need to get freeholders permission.
Look carefully at the management pack and see what you are liable for.
Look to see where the money was spent in previous years
Ask to see any future planed expenditure and any tree report if there is one either when the estate was built or since then.

So... it turned out that the seller had actually made a mistake and communicated the wrong SC to the agent. They were hugely apologetic but refused to go down in price when we reduced the offer by 30k. We then made a best and final offer at 680k (20k less than initially offered). They also rejected this however when we said we would walk away they knocked off 5k to 695k. When we also rejected this the agent said he was quite confident that he could get them to agree to 690k, which we said wasn't enough in light of the huge increase in SC.

This is basically where we stand, seller at 690k (although not "officially" confirmed) and ourselves at 680k and the deal at the minute is officially off (unless someone gives in).

Any advice on how to play this would be hugely welcome.
It might seem silly, but from a psychological point of view we at least expect him to meet us halfway (at 685k) or even better at 680k.

I would have a look at house sale prices in the area where these costs are shared

If your price looks on the money then that’s reassuring. If a number of sales have gone through that’s also a good sign

The only emotion that matters is how much you love the house

It doesn’t matter whether they are getting one over on you. Do you want the house at that price or not?

Re-read your posts. What would your advice be if you read them?

So hard to advise, OP.

If you did buy, there's no guarantee how long you'll stay in the house, so I think the £5k reduction equating to around 5 years extra SC payments is not entirely unreasonable although I'm you could push them to stretch further.

Only you know how much you want the house, and if the location & grounds are something you want and are happy to pay to upkeep.

What are your options if you pull out of this one?