Most people’s property is their most valuable and important asset. The UK Property Market is cluttered with corporate entities claiming to be cash buyers, offering quick sales in exchange for a reduction in the price of the property.
Whilst many of these companies are regulated by the Property Ombudsman and carry the relevant professional indemnity insurance, there are a number of companies who operate unscrupulously and will do anything to make money.
Buying anything fast for cash is a risky business in an uncertain market, like the property market in the UK today.
With uncertainty surrounding the future of the base rate and the economy as a whole, you have got to ask yourself what is in it for the cash buyer?
Various strategies exist in the market today;
– Buying and reselling immediately for profit
– Buying, refurbishing and reselling for profit
– Buying and holding for rental income
– Buying and refinancing to hold for long term rental profit, effectively recycling the same funds
All of the strategies above are reliant on the cash buyer purchasing well below the current market value.
Below you will find a number of stages during the sales process where you will need to proceed with caution;
Firms offering 100% of the market value
Many firms will advertise claiming to purchase for 100% of the current market value. You do not need to be a brain surgeon to work out that purchasing for the full value of the property does not make commercial sense, unless the market is radically appreciating, which the UK is clearly not.
Anyone offering to purchase for 100% of the market value will be using this as a hook to get the vendor to pick up the phone.
Once engaged in conversations, it will be explained that only in some areas will the company in question pay the full market value. One way or another, there will be various reasons / excuses offered to justify why 100% of market value cannot be offered.
If you see a company claiming this as part of their advertising, run a mile. If they are willing to mislead you to get you to make contact, think about what other underhand tactics they may employ once you have agreed to sell to them.
Declaring a false sale price / creative financing
The world of creative finance has somewhat slowed down over recent years but reliable sources suggest it is still going on all over the country.
Over the years, a number of investors have agreed a discounted price with a seller and later they have convinced the seller to sign contractual paperwork at a higher price.
Investor buyers do this so that they can effectively purchase the property using a mortgage, without the need for a deposit.
The mechanism that facilitates this process is complicated but ultimately relies on the mortgage surveyor valuing the property at the open market valuation with a view to the purchaser borrowing 75 – 80% of the value, thus, buying with none of their own funds.
An example of a ‘no money down deal’ would look something like this:
Open market value: £100,000
Price agreed with seller: £75,000
Loan offered by lender: £75,000
Deposit paid: £nil
By asking you to state that the property has been bought for full market value, the lender believes that the buyer has paid a deposit for the property.
This process of misleading the lender is mortgage fraud and both the seller and the buyer could face prosecution.
In addition, it is also worth noting that if you are receiving benefits, overstating the purchase price paid for your property could affect your benefits entitlements as it may be assumed that you have additional money from the sale of the property.
Unregulated sale & rent back
Sale and rent back is defined as a form of property transaction involving the expeditious sale of an owner occupier’s residence to a landlord or property company and renting it back from the new owner.
Otherwise known as SRB, these transactions are now fully regulated by the Financial Conduct Authority [FCA].
If you are looking to remain in the property after selling it, you must ensure that the company that are offering this service are regulated to do so. Visit the FCA website here for more details and to determine if the company have the permissions to operate in the SRB marketplace.
The reason sellers generally wish to stay in the same property is twofold, firstly, to avoid the upheaval of moving and secondly, because they love the house, area, neighbours and simply do not want to move.
Consider this, if the mortgage payments are too high and this is the motivation for the sale, how is the vendor then going to be able to afford rental payments to remain in the same property? The short answer is they are not.
This statement has been lifted directly from the FCA website ‘Since 30 June 2010 we have regulated firms that offer sale and rent back (SRB) to consumers. This replaced our interim regime, which ran from 1 July 2009. SRB involves people selling their home, usually at a discount, in exchange for the right to remain in the property for a minimum of five years.’
In summary, if you are insistent on remaining in the property, do your research, potentially speak to the FCA and most importantly, do not deal with someone claiming to be regulated, check for yourself!
Claiming to be the buyer and then selling the property on
Many of the smaller corporate buyers & private investors will agree a price with a seller and then frantically attempt to find a buyer for the property whilst deceiving the vendor that they are in fact the purchaser.
Some companies will buy on a joint venture basis with others who fund the purchase.
It is important that you are confident you are dealing with the end buyer as they are the only party that can actually commit to the purchase as they hold the funds.
Ask the company you are dealing with if they are the buyer. If they say yes and you have any concerns, download their accounts from companies house or ask to see proof of funds.
If the company cannot provide proof of funds, this is a clear indication that they are trying to sell the property.
There is nothing illegal about agreeing a price and then sourcing a buyer but misleading the vendor is certainly frowned upon. Once again, do your research, ask relevant and pertinent questions & ask for proof if you feel it is necessary.
Last minute price reductions
This is the most widely publicised of all the quick property buying scams. There are a number of unscrupulous traders in the property market who deliberately delay the survey until the last minute and use it as an excuse to justify a reduction in the price.
It is common knowledge that local surveyors who have been working a particular area for many years will have far more of an understanding of how much properties in that area are likely to sell for.
All property companies and private buyers alike will need a survey before committing to any purchase but it is the timing of this survey that the seller needs to be careful about.
Once you agree to proceed with a company, request an early survey and ask to see a copy so you know your position as early as possible.
This gives you the opportunity to withdraw and explore alternative routes to sell your home.
It is also worth noting that the survey is not the only justification some companies use to reduce the price. Be careful not to reveal how motivated you are or how important your move is as certain companies will see this as a way to offer less at the last minute knowing you have no choice but to go ahead.
Some companies have been known to wait until the day before completion and offer £20,000 – £30,000 less!!
In Summary, there are a number of rogue property companies in the marketplace who you need to avoid at all costs.
If the company in question has a reputation for such unscrupulous activities, Google will be your best weapon to find this out. Type the company name and ‘complaints’ into the Google search facility and carefully read through any results.
There are also some reputable companies who are genuinely interested in helping the vendor achieve a quick sale at a fair price, UK Homebuyers Ltd having a strong reputation for treating customers fairly and offering flexibility that many others do not. Do your research, proceed with caution and you will find success.