Legally locking in an offer What do other countries do?
Do other countries legally lock in the offer when a seller accepts an offer from a buyer on their property?
At Cooper Adams we now use Reservation Agreements when an offer on a property is agreed. If a party withdraws on a whim there are penalties. How do other countries deal with this?
Canada:
In the Canadian real estate landscape, once an offer is accepted, a due diligence period ensues, lasting one to two weeks. During this time, a deposit of approximately 5% of the property price is made. This phase involves a survey of the home and a title review. If issues surface, the buyer can leverage them for negotiation, compelling the seller to address concerns. The buyer has the upper hand during this period, and even if a better offer emerges, the seller can only accept it if the initial buyer withdraws.
Should a buyer retract before removing conditions, the deposit is refunded. After the due diligence period, once the buyer is content with the survey and titles, conditions are lifted, and the offer transforms into a legally binding agreement. At this juncture, the property is marked as sold, and further showings cease. Should the buyer decide to step back, they forfeit the deposit, exposing themselves to potential legal action. Remarkably, in regions like British Columbia, a mere handful of deals out of thousands experience fall-throughs each year. The average closing time hovers around 60 days.
United States:
Crossing the border into the United States, particularly Florida, the real estate process takes a different, yet equally fascinating, turn. A buyer, upon making an initial offer, typically places a $10,000 deposit. This initiates a due diligence period, lasting ten working days, during which the buyer can inspect the property at will. Notably, there is no penalty for withdrawal during this inspection phase.
In Florida's real estate dance, renegotiation is a common occurrence, happening in around 95% of deals. Importantly, the seller lacks the ability to back out during this initial period, allowing them to explore other property options. Only when the buyer submits a second deposit, typically 10% of the purchase price, does the contract bind both parties.
If the buyer decides to exit the deal after this stage, they forfeit the 10% deposit but aren't obligated to pay the full value. Although contracts in the U.S. boast an impressive 96.1% completion rate, the closing period fluctuates based on state regulations. Some suggest an average of 45 days for mortgage-based transactions and a shorter 30 days for cash buyers. The concept of "in escrow" is familiar to viewers of Selling Sunset, where all deposits are safeguarded by a neutral third-party escrow agent.
South Africa:
South Africa introduces a distinctive approach, emphasizing commitment once an "offer to purchase" is accepted. This acceptance triggers a legally binding agreement with no cooling-off period, except for properties under 250,000 rands (£12,100). Changing one's mind post-acceptance results in a significant loss, including a 10% deposit, estate agent commission, and liability for the seller's costs.
Conditional offers, tied to mortgage approvals or home sales, provide some flexibility. However, due to South Africa's bureaucratic pace, transactions typically stretch over three months but exhibit remarkable resilience against fall-throughs.
Australia:
The complexity of real estate in Australia unfolds across its varied states, each with its distinct rules and timelines. Offers, whether written or verbal, lack legal binding unless formalized in a signed contract. Most states enforce a cooling-off period (up to five days), with penalties for withdrawal.
After the acceptance of an offer and contract signing, buyers in states like New South Wales pay 10% of the purchase price. Withdrawal after the cooling-off period results in deposit loss. The subsequent period of four to eight weeks allows for financial arrangements and property surveys. Australia, with its conservative market, experiences rare fall-outs, and the process duration varies, averaging 42 days in New South Wales and 30 days in Queensland.
The Netherlands:
In the Netherlands, a buyer's offer, often facilitated by their agent, lacks legal binding until the preliminary or temporary purchase agreement is signed by both buyer and seller. An intriguing three-day cooling-off period follows the agreement, during which the buyer can cancel without penalty.
Agreement terms, including penalties for withdrawal, are settled by both parties. The buyer then enjoys four to six weeks, as stipulated in the contract, to organize finances and conduct property surveys. Legally, the buyer can withdraw if financing falls through or significant issues emerge during the survey. A 10% deposit is mandatory before finalizing the purchase agreement, which is released to the seller if the buyer withdraws without a valid reason. The entire process from offer to completion takes about four months, with a commendable 5% fall-through rate.
Spain and Portugal:
The distinctive notarial system in Spain and Portugal sets the stage for secure and rarely terminated sales agreements. The buyer's journey involves making an offer, followed by a non-binding letter of intent (LOI). A small deposit of about 1% of the purchase price secures the property temporarily. Legal searches and property surveys precede the formation of a binding contract, known as contrato de promessa compra e venda in Portugal and contrato de arras in Spain. A 10% deposit is paid at this stage, with taxes settled before completion.
Withdrawal after the binding contract results in losing the deposit, while the seller, if gazumped post-contract, refunds 20% — 10% from the buyer and a 10% penalty. Fall-through rates post-LOI are low, and completion averages around six weeks.
Italy and France:
Italy and France mirror the notarial security found in Spain and Portugal. Prospective buyers initiate a three-stage process: offer, preliminary contract (compromesso in Italy and compromis de vente in France), and closing. The reservation agreements are legally binding, ensuring a rare occurrence of fall-throughs.
In Italy, the buyer signs a compromesso, pays a deposit (usually €40,000 to €50,000), and risks losing it if they withdraw without a valid reason. If the vendor defaults, the buyer can request double the deposit amount. France follows a similar pattern, with a reservation agreement (compromis de vente) being legally binding and deposit amounts ranging from 5% to 10% of the purchase price.
Stricter rules and the involvement of lawyers and public notaries contribute to heightened security. Delays are possible due to legal reviews, but the average completion period is 109 days in Italy and 82 days in France.
The UK:
There are now two choices:
1. UK law at present means a buyer can view a property, get an offer accepted and proceed with the purchase; but they can withdraw if they wish, at any time, with no penalties during the four-month timescale it takes.
2. Cooper Adams and over 1000 other UK agents now offer Reservation Agreements legally locking seller and buyer when an offer is agreed with a financial penalty if a party withdraws unreasonably.
In conclusion, although the UK Government recommend Reservation Agreements, they are not yet UK law.
Cooper Adams’ clients now have a choice to use them if they wish.
Most other countries have them by law.
If you want more commitment, peace of mind and security when you sell or buy, let's have a chat.