How the Scottish homebuying system differs to England’s

When it comes to the property buying market, gazumping unfortunately still presents itself as a big problem in England and Wales, and each year leaves potentials buyers out of pocket by the thousands, in fact, according to Zoopla it is estimated to cost potential homebuyers almost £270m each and every year as a result of failed housing transactions. According to the estate agents Countrywide, it is estimated that the practice of gazumping effects over 3.6% of all properties bought, which is a six-year high. However, the practice is far less common in Scotland due to the differences in their homebuying system. But what exactly are these differences? As one of the country’s leading bridging loan lenders, we explain the fundamental differences between each of the homebuying systems.

Risk of gazumping

If you are selling a property in England or Wales, it isn’t a legal requirement for sellers to stop marketing a property once they have accepted an offer from a buyer, and as the exchange of contracts can take up to eight weeks (which is when the home buying has become legally binding) it means there is a very real risk that another buyer may jump in and give a higher offer.

Whilst not illegal in Scotland, gazumping is far less common due to the homebuying system in place, as houses are usually taken off the market as soon as a price has been agreed upon. In addition, unless the original offer has ended up falling through, solicitors have to decline to act for a seller if they end up accepting a later offer from another party.

Upfront information about the property

Whereas in England and Wales the only upfront information that must be provided when it is marketed is its energy performance certificate (EPC) in Scotland, nearly all residential properties must have what is called a ‘Home Report‘ before it can be put up for sale.

How the property is priced and who markets it

It is commonly the case for properties that are up for sale in England and Wales to be marketed by independent estate agents at an advertised price. However, this works differently compared to Scotland’s practice. Here, it is rather solicitor firms as opposed to independent estate agents who are the ones who are most commonly responsible for marketing properties. The reason why this is mostly the case is that in Scotland, the majority of residential conveyancing firms also have an estate agency department too. Furthermore, there is another difference too: homes in Scotland are either marketed at a fixed price or as offers over a specified amount,

Making an offer

Another difference between home buying schemes in Scotland is how a potential buyer can make an offer for a property. When a home has been marketed in Scotland as offers over a specified price, the bidder then ‘notes an interest’ with the seller’s agent. What this means is that the bidder will now be notified if there is a closing date for offers that is set by the property owner, and at this point, the noting of interest does not mean the bidder must put in an offer at this point.

Moreover, buyers have to submit a date of entry when they would pay for the property and collect the key, as well as provide a sealed bid, which is done through the solicitor by the closing date specified.

homebuying-systems-scotland

Gazumping is far less of a prospect in Scotland due to the differences in the homebuying system.

At this point, whoever is the successful bidder (and it isn’t necessarily the case that the seller of the property has to choose the highest bid that has been put forward) then starts the negotiation process in order to finish the contract.

With Scotlands fixed price system typically used when the property market conditions are more difficult and the seller wants a quick sale, it is always the first person to provide the stated selling price who gets the property.

Whereas in England and Wales, an offer is accepted by a seller subject to contract, which is an agreement that in itself is not legally binding. That means until contracts have been exchanged (the process of which can take around two months to sort out) either party has the possibility of withdrawing without any penalty incurred. In some cases, the seller never even takes the home off the market, in the hope that there are other potential buyers who could end up making a higher bid, which in turn leads to gazumping.

Exchange and completion

As it stands in England and Wales, there exists no legally binding agreement until contracts have been signed, meaning that either party could withdraw at any point from the sale. This may happen for a number of reasons: for example, an insufficient mortgage offer, a change of heart, problems in the survey, or just simply a change in circumstances.

However, this is not the same case in Scotland. It is commonplace for the seller’s solicitor to inform bidders on the same day whether or not their bid has been successful. If they are, then the buyer’s solicitor will then get mortgage confirmation, agree on a date of entry and then deal with legal property enquiries.

Instead of a single contract, there are a series of ‘missives’ ie, formal letters that are changed between solicitors on both sides. The process can take between one day and four weeks, and the deal becomes legally binding once these missives have been concluded, with the seller having to give the legal title to the buyer.