Financial implications of chain collapse

[ChainStress]

We are in a chain of three. Our buyer is in rented, we are in the middle, and our vendor is (probably) going into rented.

We accepted our buyer’s offer in February. Since then, they have pushed ahead on the legals but have refused to apply for a mortgage as they say they want everything in place before they do that. This seems very strange to me.

Our offer was accepted by our vendor in March. From the outset it was clear they were reluctant sellers. It look them over 3 weeks to accept our offer for over the asking price! Over the last 3 months they have changed their minds (almost weekly) about their next move - onward purchase, stay with family, rented. They have now settled on rented. Our agent told us they cancelled a previous sale because they couldn’t find anywhere they liked.

I’m really concerned that either our buyer or seller is going to pull out at a critical stage (after exchange?) with serious financial implications for us. Can anyone help me understand what would happen if our buyer pulls out and what would happen if our vendor pulls out? The vendor pulling out concerns me the most; the vendor have no deposit to lose if they go into rented so what’s stopping them changing their mind at the last minute.

Could you ask your solicitor to get them to agree a £10k non returnable holding deposit until they are tied down under contract?

This is what our solicitor did at the point we accepted an offer from a buyer we had reason to be cautious about after a string of low offers.

But I think it’s rare and doubt OPs seller would agree at this stage. The very suggestion could alarm them.

@ChainStress what you would all lose is the costs you have incurred so far. Even your seller will have incurred some cost (legal) though admittedly not as significant as the costs a buyer will have accrued if they have done a survey.

What if our vendor pulls out between exchange and completion? Would we still have to sell to our buyer?

If the vendor pulls out after exchanging they are liable for costs and compensation. It’s possible to exchange and complete on the same day which eliminates this, we did

They both sound very flakey and I’d be very surprised if the sale goes through. With the market as it is at the moment if you are desperately looking to move I’d try and lock in your buyer, you can always move into rented, the market seems to be going through a readjustment from the crazy of a couple of years ago. I’d also start looking around for other properties you may be interested in. I think if they’ve accepted your over asking price offer, unless it’s something incredible you’re probably paying over the odds in the current climate.

in answer to your original question you would lose anything you’ve paid so far on the property you’re buying eg searches etc.

Once you have exchanged with your buyer you are committed.

Before exchange with your buyer you are not committed to selling them the house.

I agree with @Billybagpuss. They both sound flakey, the sellers even more than the buyers from your description.
I'm also concerned that you are probably over paying given the general state of the market and the economy.
Yes, you will lose whatever fees you have paid if someone else pulls out.

I would probably just cut my losses and pull out of your purchase at this stage and look elsewhere. Can you have a direct conversation with the buyers as to why they don't want to apply for a mortgage? Has the agent checked their funding adequately? How quickly were you able to sell in Feb? Things may have slowed down since then.

They can’t pull out after exchange, well they can, but at huge costs

I don't think we are overpaying. We offered 35k over the £1.2m asking price. Houses on the street go for over £1.5 if they are modern. This house is not modern. We have factored in modernisation though.

My main concern is we all exchange contracts then the vendors pull out. What is to stop them doing this? What costs would they bear if they are going into rented? They don't have large sums of money in the game like me and my buyer.

If they pulled out between exchange and completion, meaning you also had to, then you could use their defaulting payment to you to cover your defaulting payment to your buyers. So make sure that the levels are set accordingly (for example, we agreed 5% rather than 10% as the level with our buyer - don't do this if it would leave you short!)

This is what we will push for.

ETA: deleted as I am wrong

That's the point of a chain, your onward purchase will only exchange once the bottom of the chain has exchanged.

They both sound flaky. Leaving the mortgage is bad as they may have reasons for leaving it and it can take a while to get the decision and the paperwork done. They are trying not to pay the fees, I suspect.

A huge proportion of sales fall through, so I look for motivated and sensible sellers and buyers, as without committment on all sides, it gets very difficult.

Does a vendor have to give a deposit to anyone if they have no onward purchase? Or could they just decided after exchange that they don't want to move? Leaving me stuck with selling my house and no where to go to!

Everyone pays a big deposit at Exchange like 10% or 5% of the purchase price which they will not get back if they pull out. Plus they will be liable for other costs too. It's very rare for people to pull out after Exchange of contracts.

If they pulled after exchange of contracts they would be in breach of contract and put you in breach of contract to your buyer if you could not still complete and provide them with vacant possession. You could still complete on YOUR sale, put stuff in storage and move into rented or a hotel then sue your vendor for your losses. Talk to your solicitor.

Sorry, OP - you are right - because your sellers aren't paying a deposit to anyone, it;s much harder

They would have to return your deposit and you may be able to claim damages for the loss.

Have you an option to put stuff in storage and move in with family/airbnb if they do this?

If they delay completion (rather than pull out) then the contract should have a penalty rate and maybe some cost allowance (for eg storage and hotels)

This is a good idea

I would definitely get your solicitor to look into making any cost/penalty clauses as strong as they can, given what they have been like

Your problem will be all the work being done prior to exchange and then someone pulls out at the last minute, as you will pay all your costs pretty much without anything to show for it.

It is very rare due to the financial implications for people to pull out post-exchange, tho I have had someone nearly die, which would have been a whole heap of grief for everyone.

It's the system in E & W, there's nothing much you can do but trust it will work out and view it as a risk you're willing to take if it doesn't. There's no way to guarantee a transaction without it being a property sold to you at an auction. Which has different risks...

As for your buyers - you won't/can't exchange until they have mortgage sorted so that is the next thing, really (and quite worrying!)

Why do you think they will pull out after exchange? That would be v unusual. Perhaps you need to ask your solicitor to contact theirs to discuss a bond to be deposited in the solicitor's account which you would receive on exchange.
Having said that, as above, as they all seem so unreliable, I would consider whether to pull out and look elsewhere.

People don't normally pull out after exchange unless in very exceptional circumstances (death etc.) This is why the chain ALL agrees to exchange at the same time.

The worrying thing is your own buyers need their mortgage approved. Without that you don't have a buyer.