An Americans Guide to Buying Property in London
Americans have always had a deep connection to Britain and London is home to many Americans for its exceptional schools, culture and job opportunities. Given the ongoing dip in property prices and relatively strong dollar to the pound, it’s a great time for Americans thinking of buying in the capital. So here is my summary of some of the major differences between buying a property in the US versus the UK (please note that every US state will have its own laws and processes, so this is just a general guidance on how things work).
Getting Financing
In America, your first step in the buying process is to consult with a bank or mortgage broker to get a sense of what you can afford. Serious buyers will actually get pre-qualified which means that the lender has checked credit and verified documentation to approve a specific loan amount and interest rates (usually for a particular period). In the UK, lenders will offer a “mortgage in principal” giving indicative mortgage amounts and rates. However this will have been done without a formal application so their level of review of your circumstances will not be as in depth.
Hiring An Agent
In the US, next step is to hire a real estate agent who will get you in to see every property that may be of interest. They will negotiate on your behalf and assist in writing the contract which is presented and negotiated with the selling agent that represents the seller. The seller will usually only list with one agent at a time and will pay a sales commission that is split between the selling agent and buying agent (typically 6%). In the UK, the market is dominated by estate agents who work on behalf of the seller (vendor). The seller will typically pay 2% commission for a sole agency, but may decide to hire several agents, and in this “multi-agency” scenario, the fee will be around 3%.
In the UK, potential buyers must register with the specific agent listed on a particular property in order to see it, and that agent can only show the stock that they have. This can be extremely inefficient as busy professionals and foreign buyers must deal with several different agents and arrange viewings at different times. In the states, your buying agent will typically go out with you and be your consultant every step of the way. This was one of the things that surprised me most as a real estate professional when I moved to London – that people are buying the most expensive purchase of their life with no one guiding or supporting them directly; instead they must rely on the estate agent that really works for the seller.
Making an Offer
In the states once a buyer wants to make an offer on a particular property, in consultation with their agent, an offer is written including price and any other terms (such as subject to a home inspection, appraisal and financing being obtained). The buying agent then presents the offer to the selling agent and negotiations commence until price and terms are agreed. A legally binding contract is then signed and usually a deposit of around 10% is held in escrow till completion. Next appraisal/inspections are conducted as per the contract. If any issues are found, the buyer may decide not to proceed, to renegotiate based on items identified, or to release the contingency and proceed with the deal. In the UK, the offer is made to the estate agent who represents the seller. Once the offer is accepted, both parties engage solicitors and a sales memorandum is issued summarizing the details.
Closing Process
During the closing process you will find a stark difference between the UK and the US. In the UK, until you exchange contract – which can be weeks or months later and after solicitors have been hired and title searches, surveys, valuations and financing have occurred – either party can walk away. For example, a seller can accept a higher offer (being “gazumped”), or the buyer can simply decide not to proceed. This leaves both parties highly exposed throughout this time. It is only at exchange of contracts that both parties are legally bound and the buyer will put up a deposit of around 10% and a completion date is set (usually a couple of weeks later, though sometimes simultaneously). At completion, the solicitors will arrange for the remaining monies to be paid and keys exchanged.
In America, the legal work and transfer of ownership is handled by a single attorney/title company appointed by the buyer. At closing, all documentation is signed, including loan documents and bank funds. Within a few days after funds have cleared, keys are then released (also can be done at closing if a cashiers cheque is issued).
If all this sounds overly complicated, it doesn’t have to be. If you are considering buying in London, whether you’re American or a local resident, please get in touch to discuss our buying service. We will navigate and streamline the entire process for you and guide you with sound advice every step of the way. We also work with renters and can help you figure out where to live and will preview properties so you’re only seeing those that meet your criteria. Our commitment is to deliver exceptional service to all our clients whether they are buyers, sellers, renters or landlords. We look forward to working with you.
