In today’s article, we’re going to talk about the major differences between buying a property in America versus here in the UK, particularly London. Consider it your comprehensive guide to the entire process and understanding some of the major differences between the US and the UK property buying process.
Americans have always had a deep connection to Britain and London is home to many Americans for its common language and familiarity. Given the ongoing dip in property prices and the relatively strong dollar to the pound, it continues to be a good time for Americans thinking of buying in London. 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 I’m presenting a general guidance on how things work).
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 fully 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. It’s not until you have found a property that the formal mortgage application process starts and that can takes weeks for approval.
Hiring An Agent
The next step in the process is hiring an Agent. In the US you will 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 who represents the seller. The seller will only have listed with one agent at a time (usually for a period of 6 months up to a year) and they will pay a sales commission that is split between the selling agent and buying agent (typically 5 – 6%).
In the UK, the market is dominated by estate agents who work on behalf of the seller (called vendor). The seller will typically pay 1.5 – 2% commission for a sole agency but may decide to hire several agents, and in this is called a “multi-agency” scenario, the fee will be around 3%, but it is a “winner takes all”.
In the UK, potential buyers must register with the specific agent who has listed 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, often based on the agent’s schedule. In the states, your buying agent will typically go out with you and be your consultant every step of the way. There are often lockboxes on many properties so access with your agent is direct and straightforward.
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. It’s one of the reasons that I specialize in working with international buyers as their buying agent.
Making an Offer
In the states, once a buyer wants to make an offer on a particular property, in consultation with their agent, they write an offer 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. At that point, a legally binding contract is signed and buyer deposits 10% of the purchase price to be held in escrow until completion.
After this, appraisals/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 proceed with the deal as agreed.
In the UK, the offer is made to the estate agent who presents the seller. Once the offer is accepted, both parties engage solicitors and a sales memorandum is presented summarizing the details. A bank requested valuation is booked and then the buyer can opt to have a survey done (there are several types) and this will be similar to the American home inspection.
During the closing process this is where there is the biggest difference between the UK and the US is seen. In the UK, until you “exchange contract” – which can be weeks or months later – either party can walk away without recourse or penalty. During this due diligence or conveyance phase, prior to exchange of contracts, that is when solicitors, particularly the buyer’s solicitor, engages in title searches, and when surveys and valuations are conducted and financing underwriting occurs. Again, remember that until that point either party can change their mind and decide not to proceed.
For example, a seller can accept a higher offer (and it’s what we call being “gazumped”), or the buyer can simply decide not to proceed. This leaves both parties highly exposed throughout this time. It is only at the 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).
Between exchange and completion, the bank has been notified to complete final steps on the mortgage and arrange for the funds to be available on completion day. At completion, the solicitors will arrange for the remaining monies to be paid and keys exchanged.
I should note that as an agent with Keller Williams, we have been working with a platform that is looking to improve on this process such that it delivers a binding commitment from both parties much earlier in the process.
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 has been presented).
So I hope this article has been helpful in giving you a sense of the buying process here in London compared to the US, what surprised you most about the differences in the process.