Few things are more frustrating than finding out that the house you have been working towards buying is no longer going ahead. You may already have paid for searches, arranged a survey, spoken to your mortgage lender and started planning the move. Then suddenly, the transaction falls apart.
So, what happens if a property purchase falls through?
The answer depends largely on how far the sale has progressed. In Wales and England, there is a very important distinction between having an offer accepted and actually exchanging contracts. Understanding that distinction can make it much easier to understand your position as a buyer or seller.
Can a buyer or seller pull out before exchange?
Yes. Until contracts have been exchanged, an accepted offer is generally not legally binding.
This means that, although the buyer and seller may have agreed a price and the conveyancing process may already be well underway, either party can usually withdraw before exchange of contracts. This is because the transaction remains subject to contract.
It can be particularly frustrating for a buyer who has already spent money on a survey, searches or mortgage arrangements, but there is generally no automatic right to recover those costs from the person who decided not to proceed.
For sellers, the same principle applies. An offer being accepted does not normally mean that the buyer is legally committed to completing the purchase.
Why do property purchases fall through?
There are many reasons why a house sale can fall through, and not all of them are within the buyer's or seller's control.
A survey might uncover serious structural problems, damp, subsidence or other defects that cause the buyer to reconsider. Searches or the conveyancing process might reveal issues with the property's title, boundaries, rights of way, planning history or other matters affecting the property.
Mortgage problems are another common reason. A buyer might fail to obtain the finance they need, or a lender's valuation may come in below the agreed purchase price. The buyer may then be unable or unwilling to proceed at the original price.
Sometimes the problem is further up the property chain. If another buyer or seller withdraws, it can have a knock-on effect on several connected transactions.
And occasionally, someone simply changes their mind.
Read: Your guide to the home buying process
What happens to your conveyancing costs?
If your property purchase falls through before exchange, you will normally still have to pay for work and expenses already incurred by your conveyancing solicitor.
For example, searches may already have been ordered and paid for, your solicitor may have reviewed the legal title and raised enquiries, and you may have paid separately for a property survey or valuation.
Those costs do not automatically disappear because the purchase does not complete. Whether your solicitor charges their full fee, a reduced fee or operates a no sale, no fee arrangement will depend on the terms on which you instructed them.
It is therefore worth checking the firm's fee structure before starting the conveyancing process, particularly if you are concerned about the possibility of a transaction falling through.
You should also consider any costs connected with your mortgage. Valuation fees, product fees or other charges may have been paid by this stage, and whether these can be recovered will depend on the terms offered by your lender.
What if the seller pulls out?
If a seller decides not to sell before contracts have been exchanged, a buyer will generally not be able to force them to complete the transaction simply because an offer has been accepted.
That can be difficult when the buyer has already invested considerable time and money into the purchase. However, the legal position is different from a situation where contracts have already been exchanged.
If you are buying a property and the seller has withdrawn, speak to your conveyancing solicitor before assuming that there is nothing that can be done. In some circumstances, the reason for the problem may be capable of being resolved and the transaction could potentially continue.
What happens if the buyer pulls out?
A buyer can generally withdraw before exchange too. They may decide that the property is no longer suitable, discover something during the survey or searches, have problems obtaining their mortgage, or simply decide not to proceed.
The seller will usually be left with their own costs and the inconvenience of putting the property back on the market.
This is one reason why sellers can be understandably frustrated when a buyer withdraws late in the conveyancing process. However, until exchange of contracts, there is normally no binding contract requiring the buyer to complete.
What changes after exchange of contracts?
Exchange of contracts is the key stage in a property transaction.
Once contracts have been exchanged, the buyer and seller have entered into a legally binding contract. The agreed purchase price and completion arrangements are fixed, and walking away is no longer simply a matter of changing your mind.
If either party fails to complete after exchange, there can be serious consequences. Depending on the circumstances and the terms of the contract, these can include claims for losses, interest and other contractual remedies, and the deposit may also be at risk.
This is why your conveyancing solicitor should make sure that the legal work, funding and practical arrangements are sufficiently advanced before recommending that you exchange contracts.
Can a failed property purchase be avoided?
Not every failed transaction can be prevented. A buyer can change their mind, a mortgage can be refused and problems can sometimes emerge that nobody could reasonably have anticipated.
However, good preparation can reduce the risk.
If you are buying, having your mortgage arrangements in place early, instructing your conveyancing solicitor promptly and arranging an appropriate survey can help identify potential problems sooner. Sellers should also make sure their solicitor has the necessary information and paperwork available at the beginning of the transaction.
Where there is a property chain, keeping communication flowing between the various parties can also help prevent avoidable delays and misunderstandings.
Read: How to avoid delays when buying or selling a property
What should you do if your property transaction falls through?
If your house purchase or sale has fallen through, your first step should be to establish exactly why it happened and how far the transaction had progressed.
If contracts had not been exchanged, your solicitor can explain what costs you remain liable for and whether there is any realistic prospect of resolving the problem. If you are part of a chain, your estate agent and solicitor may also be able to establish whether the other parties are willing to continue.
If contracts had already been exchanged, seek legal advice promptly. The consequences of a failed transaction are considerably more serious once a binding contract exists.
At Fonseca Law, our conveyancing solicitors in Ebbw Vale, South Wales, advise buyers and sellers on all aspects of residential property transactions. If your property purchase has fallen through, or you are concerned that your sale or purchase is at risk, we can explain your legal position clearly and help you understand what to do next.