On Exchange of Contracts: Is it normal for the seller to request deposit by the Buyer - 10% of asking price

[BroglieBoy]

We are in the process of buying a property and the Solicitor's letter mentions the below line:

"On exchange of contracts, it is normal for a Seller to request payment by the Buyer of a deposit of up to ten percent of the price. If you have not already made provisions, please telephone me so that arrangements can be made to let us have the necessary funds."

Our Situation:
We plan to request for a completion date of 2 months from the day we exchange the contract This will allow us to give 2 months notice to our landlord from whom we are currently renting a house.
We have the deposit ready and if it is a legal requirement then we can release the money on the exchange of contract. However, I don't think that is the case but I am not 100% sure.

Question:

1. Is it mandatory for us to release the deposit on the day of exchange of contract? I thought we need to release the money only a few days( 3 to 4 ) days before the completion date.
2. Can we decline this request?
3. Why should we release the money 2 months in advance and lose interest on the same.

Thanks

Yes, 10% on exchange is normal but I’d have expected you to have informed the estate agents/solicitors at the start that you required such a lengthy time between exchange and completion. I was a conveyancer pre-kids and a week between exchange and completion is usual (unless a new build) and as a PP has mentioned, you may run into problems if the rest of the chain don’t agree.

If a longish time between exchange and completion is agreed, make sure you've checked who is responsible for the buildings insurance during that period.

The buyer is responsible for buildings insurance from the point of Exchange, right through to Completion, even though they don't own it yet.

Ah, that is what I thought I was remembering (18 years since we moved into current house).

You can decline but then they can decline to sell to you. And unless the sellers are desperate for the sale or super tolerant, I’d be surprised if they agree to a 2 month delay between exchange and completion! Certainly if you want to do this you need to tell them immediately and make it clear you know it’s a big ask, and so you’re happy to comply with their deposit request.

We sold a probate property recently so we weren’t in a huge hurry but it dragged on and on because the buyer’s solicitors were messing us about. After 4.5 months we ended up saying they needed to exchange within a week and complete within another week or we’d put it back on the market. Surprise surprise, suddenly all the delays and problems disappeared and they were ready. This was a first time buyer who was in a rental property and we reckon he was delaying to get to the end of his rental contract! We’d much rather he’d just asked for a later completion date rather than mess us about - we’d have agreed since we weren’t in a chain, but as it was it caused us so much stress and worry.

Im not sure a deposit works like this when you're selling a property and the equity in that property is the 'deposit', because you dont actually have cash funds.

The main difference between Scotland & England is that the completion date is not fixed at the start in England.

There are a lot of other things too but I found that every one working to a date helps lots for planning.

You will prob need to be more flexible in the English system (than you sound).

I believe that you have to start paying building insurance on the new property when you exchange. Please can someone correct this if I’m wrong.

just to alert you that there will be additional costs in this his period potentially.

You are liable for the 10 percent deposit from exchange. In practice, it is sometimes agreed to place a lower amount of money actually in the solicitors account, and then the rest nearer completion. If you pulled out after exchange you would still need to pay the rest of the 10 percent though.

Try and negotiate better with your landlord? Can they fill your property sooner then the 2 months and you only pay to cover time the property is potentially empty? Unfortunately paying rent and mortgage for an overlap is common.

They won't.

It's usually within 2 weeks and sometimes the same day.

To reassure you OP the money doesn't go into the hands of the seller but is retained by the Solicitors. In case that's what you are worried about. The deposit is payable if you pull out so it's basically tying you to complete on the agreed date

Yup.. which means OP if the whole house burns down before you've even moved in then that's your insurance that pays.

Why do you feel tou need such a long gap between exchange and completion? Its not normal in the English system.

Also, bear in mind that a mortgage deal CAN STILL BE PULLED after exchange but not after completion so if there is a chain, it adds risk. Its unlikely, but possible.

The sellers are pretty unlikely to agree, especially if they are only hearing about this after you’ve made an offer and they’ve started the legal process.

Frankly they’ll think that you’re taking the piss, trying to force them into something very unusual. If our buyers had suddenly announced that after we’d accepted their offer, we’d have strongly considered pulling out completely as we’d think they were unreliable and likely to be difficult.

You should get in first now: contact the estate agent, explain that you hadn’t understood the English buying process, and ask whether the seller is willing to consider a 2 month gap. Odds are they’ll refuse. There are all kinds of issues with it under the English system. It’s totally normal to pay rent and mortgage with an overlap, look on the positive side, it will give you time to redecorate/choose new furniture etc.

Totally normal and I'd never agree to a two months gap at this stage unless you told me you needed to do this when I accepted your offer.

We moved from rental and had a two week crossover, it was expensive but very handy for giving us a flexible moving date and time to clean and do some odd jobs before we moved in.

When moving to a purchased house from rental you need to be communicating with your landlord and give notice to coincide with the likely completion date of your purchase. Nobody waits until exchange to give notice on their rental. You've screwed up here and your seller may not agree to such a long delay. It puts them in a vulnerable position and may screw up their onward chain as nobody would be anticipating such a long delay. If you haven't communicated that to the seller already and got their agreement you've been very remiss. You must make sure they are in agreement with this before exchange.

They don't need to do that. They have a rented house to live in. They just don't want to pay rent and mortgage at the same time.

They don't want to pay rent and mortgage at the same time. They haven't realised that they needed to give notice much earlier when they knew when the exchange date was likely to be. They also haven't realised they will lose a lot more than a month's rent (bearing in mind mortgage payments are paid in arrears not in advance like rent is) if they screw the seller around and lose the purchase.

Well they might. It’s common for it to take 2-4 weeks but people can agree different timescales.

The time scale from exchange to completion can be negotiated but is most often 2 weeks.

2 months is neither wise nor usual.

Yes you have to pay a 10% deposit before exchange can happen - this sits with the solicitor until completion, and if you fail to complete on the agreed date then you might lose it

2 months between exchange and completion - that is madness. Have you already discussed this as that would be a no from me

Two months? That's a long time!

If your vendors are buying somewhere it's very unlikely they'll want to wait two months after exchange to complete. When renting you give your notice before exchange and hope for the best if you don't want a big crossover.

Thanks Again every one for your valuable inputs. We had communicated to our Solicitor that we need 2 months and they should communicate the same but we were told that we are not yet at that stage of discussing the completion date.

We were also advised not to give advance notice to the landlord before we have exchanged. As there is a risk that the seller can pull out and we end up loosing the rental accommodation.