Your free guide from Preston Baker Estate and Letting Agents
Understanding property chains
When it comes to moving, property chains are something to be aware of. Most people find themselves in a property chain of some kind and while most chains proceed smoothly, some can be problematic. It certainly pays to be informed on the subject.
Broken property chains are frustrating and upsetting. You can put hours and hours into planning viewings, doing viewings, negotiating on price, getting an offer accepted, instructing a solicitor, and then your buyer decides to pull out just before exchange. This leaves you in a difficult position and if you don’t find another buyer quickly it’s very likely your property sale will fall through. This is a broken property chain and it’s a stressful process to be involved in.
The many variables involved in property chains inevitably cause some chains to break. However, there are things you can do to reduce the chance of your house sale falling through and here at Preston Baker Estate Agents we do everything we can to ensure that any property chains are as secure as possible.
Our local teams covering Leeds, York, Selby and Doncaster work hard to check the reliability and security of any chain to make your move as stress-free as possible. It pays to be prepared and educated when it comes to moving house and so we have put together some information for you on property chains, which will hopefully help you avoid some of the potential property chain pitfalls.
Property chains explained
A property chain exists when there are a number of buyers and sellers linked by the sale or purchase of a property; it’s like the links you find in a chain. A property chain differs depending on your position in the chain.
The upward chain in a property chain is the sellers of the property you are looking to purchase, the sellers of their onward purchase and so on. The upward most point of the chain may be an empty property that is part of probate or someone selling a second property.
If there is a large upward chain there can be challenges involved as any completion date often depends on when those above you are able to move. This can be problematic if you are wanting to sell and move quickly.
The lower chain in a property chain is the buyers for your property, the buyers of their property and so forth. The lowest person in the property chain is someone who doesn’t have to sell for a sale to go ahead. This may be a first-time buyer who is living with their parents or a cash buyer.
Property chains are very common in the moving process and generally are less risky and problematic the shorter they are. People with no dependent sale usually have a much better chance in negotiations.
If there is a long chain it can be more challenging for both buyers and sellers and put people off getting involved as there is a much higher chance that a buyer will pull out before exchange. This can be very time-consuming, stressful and expensive
If you’re in a closed chain, sales progression can be much more straight-forward. The buyer has nothing to sell and the seller has nothing to buy.
Advantages of a property chain
The major benefit of being part of a property chain is that it presents a realistic way to purchase a new property when you don’t have a huge cash reserve at hand.
As the majority of us don’t have a large sum of money in our bank account, we need to sell our existing property first before using that money to buy our next property.
The name ‘property chain’ describes this common situation.
Drawbacks of a property chain
Being part of a property chain can have disadvantages and a significant number of property chains fall apart; around 1 in 4 collapse.
Chains are only as strong as their weakest link and can only move at the speed of their slowest transaction.
When someone in your chain is moving especially slowly then the whole chain slows down.
On one end of the chain a seller could have a change of heart and decide not to sell, or at the other end a buyer may not be able to get a mortgage. Or perhaps a property could have structural problems.
Property chains have so many elements, including estate agents, mortgage lenders, legal firms and surveyors. They can all be part of a chain and so there is a chance that your chain could break down and you could lose money.
A broken chain
A property chain breaks when either a seller or a buyer pulls out prior to exchange. This can be pulling out of either a sale or a purchase. This can very easily result in sales throughout the entire chain falling through, unless their place in the property chain is replaced by someone else.
A broken property chain can leave both the buyer and seller significantly out of pocket. Currently there are no laws in the UK that stop a buyer or seller withdrawing from the deal prior to the contract being signed. Some of the costs that could affect you in this scenario are legal, conveyancing and survey costs.
In most instances a property chain break is seen as a bad occurrence, although there are some cases where if a seller or buyer pulls out prior to exchange it can be somewhat beneficial. For example, you may get out of a long chain and be able to move faster as there are less people to agree on a completion date. There may also be an opportunity to get more money for your current property, get a lower price on your onward buy. There are perks to being a buyer or seller in a proceedable position and it’s important to leverage these when you can.
There are times when breaking the property chain and taking control of it can be advantageous and mean that it’s more likely that your transaction will go through to completion, because there is less chance of something to go wrong. A long chain relies on so many things, including finances, surveys and timings. Clearly a smaller chain has a better chance of going smoothly.
A controlled chain break can retain the transaction for you and others in the chain, and sometimes you can take the decision to sell your property and temporarily move into rented accommodation or with family to do this.
Minimising the chance of a property chain break
There are many reasons why a house sale may fall through, especially when there is a long property chain involved. To help you lessen the chance of a chain break, here’s a list of the main reasons why a seller or buyer pulls out prior to exchange:
People can experience hard times and find themselves unable to pay for a property, causing them to pull out. This can be due to all kinds of reasons, including job loss, a change in circumstances. It’s important to check out every buyer who makes an offer to find yourself a reliable buyer. That way it will be far less likely that your buyer will pull out before exchange.
Can’t find an onward move
Buying a new home is a major decision and while some people may sell their house subject to contract, if they can’t find the right house to move to it may cause them to wait until the right property comes along or even pull out of the chain prior to exchange.
Keep it real
When borrowing money to purchase a property an assessment is made to see how capable a borrower is on making repayments. It’s important not to exaggerate here as it may mean pulling out of a purchase and a chain collapsing.
Some people are just indecisive – they just can’t make a decision and will look at property after property. It’s important you watch out for these people when moving as they can cause chains to collapse. Offers are only legally binding after a sale has exchanged and serial timewasters can just pull out before exchange.
Surveys cause property chains to break down. In some instances the sale continues. This may be because you have to accept a lower offer from your buyer, take out a different product from your lender, or pay an increased interest rate. However, your buyer may pull out, leaving you having to find a replacement. You may have to seek alternative lending and even break the chain yourself if you can’t secure the lending
We would recommend ‘full disclosure’ to a buyer upfront; if you tell them about potential faults or issues with a home the less chance they will pull out further down the line. For example, if your boiler is old, get it serviced by a qualified contractor and have that paperwork ready. Get quotations for any remedial work that needs doing and have this information ready for buyers, removing the chance of it becoming an issue.
Keep an eye out for people who don’t actually want to sell their property but who may be forced into the market by circumstances. A property sale can be prompted by a loss of job, debts or a court order. If their circumstances change mid-way through the process they may pull out before exchange.
Covid-19 has caused many house sales to halt, bringing breaks in property chains. Job losses and the economy have affected many individuals and caused people to pull out of house moves.
Gazumping is when another buyer outside the property chain makes a higher offer and when accepted by the seller and you can’t up your offer, forces you out of the chain prior to exchange. People who gazump are usually cash buyers or someone with no dependent sale, able to move in quickly and remove the stress of the chain from the seller. Gazumpers break down the whole property chain; a huge problem if it happens at the bottom of the chain, less so if near to the top of the property chain.
You are gazundered when a buyer lowers their offer on your property just before exchange. This is very cheeky, particularly when it’s for no real reason other than to cut some money off the price. However, bear in mind there can be some valid reasons for this, such as solicitors discovering a legal problem with the property or the survey uncovers something. It pays to get specialist surveys done if you are unsure about anything; this can make the chain break easier for everyone.
What’s the cost when a buyer pulls out?
It can be both expensive and hugely frustrating when a buyer pulls out before exchange. Some of the costs involved with a breaking property chain include solicitor’s fees, survey fees, search fees, lender fees and removal fees, if paid up front. These costs can be into thousands of pounds.
Protect yourself against chain break
You can protect yourself against a property chain break with Homebuyers’ Protection Insurance. Typical policies cover the costs of conveyancing fees, house repayments arrangement fees and surveys when a chain break occurs.
Another way is to protect yourself by only buying a chain-free property. All you need for this is to find either a cash buyer or a buyer with no dependent sale.
How to prevent a house sale from falling through
As we have explained, property chains can be extremely annoying and problematic. They can be expensive and slow down the moving process a lot. Even property chains that progress to plan are stressful as you are always reliant on a number of other parties and nothing is sure until you exchange. Even then people can still pull out, although not many do at that stage. Long property chains are a very stressful way to move.
We want you to have a stress-free move and to be prepared for the worst if your buyer does pull out before exchange. To this end we have put together some tips to avoid property chains falling through.
Here are our tips:
Make sure you do your homework
Purchasing a property is a highly competitive process and some people will exaggerate the truth to get ahead. Some people may say they are a ‘cash buyer’, for instance, to seem more appealing, when in fact if you do a bit of research you will find this is not exactly correct. It may just mean they are sold subject to contract with outstanding borrowing. It’s worth looking into how a buyer is going to purchase your property.
Before accepting an offer check exactly what position the lower chain is in and be specific in your questions. Have they had their survey done? Have they applied for searches? Do they have a mortgage offer? These are all things your estate agent should do for you.
Select a reliable buyer
Picking a reliable buyer is key to a property chain’s success. Do your research and by finding a reliable buyer your sale is far more likely to go smoothly and to schedule. You should have less hassle and save money too.
Get your paperwork in order
You can really help move things forwards towards exchange by getting your paperwork in order. Property chains work better when everyone is efficient, so get all the necessary paperwork to your solicitor and you will find the process smoother and you can’t be the one blamed for holding things up!
Keep in regular contact with your estate agent
Here at Preston Baker Estate Agents we keep you fully informed throughout the moving process. It’s important you have regular contact with your estate agent to know the progress of any property transaction and to keep things moving.
At Preston Baker you have a dedicated team looking after you from beginning to end, and your team is highly qualified in the sales progression process to get your sale to completion. We know this is the most stressful part of a move and it’s our mission to remove as much of the stress from moving as possible so we focus really hard on this element of the process to make life as easy as we can for you.
Avoid getting in a chain
By doing the right preparation and research you can minimise your chances of getting in a chain, or at least in a long chain. If you are selling a property and have multiple offers you can choose a buyer who isn’t in a chain themselves, such as a first-time buyer
You could also look for properties where the upward chain is short, or there isn’t one; perhaps the previous owner has passed away and the property is now empty or it was a second home and the vendors don’t need to find anywhere else to live. Be aware though that you can’t always predict a chain.
If you are struggling to get an offer accepted on a property because you are in a chain when other buyers are chain-free, you could look at selling your property and moving into rented accommodation for a while, or even in with family or friends. You will then be a chain-free buyer, which gives you an advantage when offering, as you will be far more appealing. This can be risky as you have no idea how long the process will take.
You could also look for properties where the upward chain is short, or there isn’t one; perhaps the previous owner has passed away and the property is now empty or it was a second home and the vendors don’t need to find anywhere else to live.
New-build homes don’t have an upward chain and if you have a property to sell it may be that the developer offers you part-exchange, which means they will buy your property in order to speed things up for you. You may not get the best price for your home this way though.
If you want to move quickly, you can try to get the vendor of the property you are purchasing to agree on a date they are prepared to move out, whether they have purchased somewhere themselves or not. Sometimes vendors will agree to move into rented accommodation to stop the risk of the deal falling through.
Communicate, communicate, and communicate
Communication is key in any property chain and by talking and building rapport chains are more likely to remain intact. This includes communication with all parties, including solicitors. Here at Preston Baker we can refer you to a solicitor who will look after everything for you, making your move easier.
Be prepared to agree to a lower sales price
If you discover that someone is considering pulling out of a chain prior to exchange it can be worth looking at agreeing to a lower sales price. Although it’s not ideal, when considering how much a chain break could cost you (unless of course you have Homebuyers’ Protection Insurance), a lower sales price may be the way to go. Think too of all the other people who may be affected in the chain.