For first-time buyers, the process of buying a home can be a daunting one; at times it even seems to come with a language all of its own. From dealing with estate agents, to lodging deposits and securing letters of loan offer, it is a complex path of intersecting problems and agencies. For example, does Sale Agreed actually mean the property is yours? What is the difference between a survey and a valuation? What are my rights if I find a defect after the deal is done?
To help you understand the process of buying a home in Ireland, and the supports available for first time buyers we have explained a few terms here to help de-mystify the process:
1. ESTATE AGENT
Remember that the estate agent, or auctioneer, is the seller’s agent; not your agent. He or she has very limited obligations to you. So, therefore, do not be too revealing in your conversations with him or her, especially as to how much money you have to spend or are prepared to spend.
2. BOOKING DEPOSIT
It is usual to pay a booking deposit to the estate agent when your offer for the property has been accepted by the seller. This is an indication of your bona fides. Depending on the price of the property this should be no more than a few thousand euro, certainly not more than 5% of the price. Conveniently, is also serves as a fund out of which the estate agent can pay his or her fee when the sale has been completed. The booking deposit is refundable at any time until contracts are signed if you change your mind about buying property for any reason. The booking deposit is credited against the 10% deposit payable on the signing of the contract.
3. 10% DEPOSIT
A deposit of 10% of the purchase price is payable when you sign the contract. This is payable, and has to be funded upfront by you, irrespective of where the money to buy the property is coming from. So, if none of the money to pay for the property is coming from your own savings, and some of it is coming from some other source, such as a credit union loan, the 10% will still have to be provided by you on signing the contract whether or not those funds are available at that time. However, because of the Central Bank rules, this will probably not be an issue for many.
Bizarrely, even though the purchase of a house is probably the single biggest expenditure a person can make, there is practically no consumer protection for the buyer of a house, unlike, say, the buyer of a car or vacuum cleaner. This is usually expressed by the Latin tag, “caveat emptor” which translates as “let the buyer beware”. So, if after you have bought the property you find that some of the windows are rotten, or there is dampness or a leak, or some other more serious structural defect, you will usually have no comeback against the seller.
Because of this you should have a comprehensive survey of the property carried out by a suitably qualified architect, engineer, or chartered surveyor. The survey involves the surveyor spending an hour or two going all over the property, going into the attic and the roof space, etc., and checking every aspect of the structure and services. If possible, you should go with the surveyor on the survey. While a surveyor cannot see what is behind the plaster on the walls or beneath the floorboards, a competent surveyor will have techniques and equipment for spotting indications of defects in the parts of the property which are covered up. The cost will be in the region of €500 depending on the size of the property and how much time is involved. If the survey shows issues of concern, there may need to be further expenditure on specialist investigations and reports.
This survey is not to be confused with a valuation. Your bank will either be carrying out its own valuation or asking you to provide a valuation. This is just a valuation, i.e., an indication of the value of the property, and does not serve as a survey.
6. NEW HOMES
For a new house or an apartment the situation is somewhat different. If you are buying a house, which is in the course of construction or has just been finished, you are effectively buying the house “off the plans”. This is because the structure has not settled down and any defects have not begun to reveal themselves. In this case, the task of your surveyor will be to look over the drawings and specifications based on which the house has been or is to be constructed in order to check that they properly provide for sound construction. Your surveyor will also do a snag list just before you pay for the property and take possession. This deals with superficial items only such as finishes etc.
When you buy an apartment, whether new or second-hand, you are effectively buying a block of space in an apartment block, surrounded by a skin of plaster, wood and glass. Everything beyond the plaster on the walls, beneath the floorboards and above the ceiling belongs to the management company. Therefore the parts of the property for which you have direct responsibility for repair or indeed can repair are limited. However, you have an indirect liability for repairs to the entire apartment block by virtue of your service charge contributions. While the scope for doing so is limited, your surveyor should consider the soundness of the entire apartment block in carrying out the survey, as any defects in this will ultimately have to be paid for by you. Of late some apartment owners have had to pay for substantial repairs to their apartment blocks through a service charge levy, with possible contributions of €20,000 being reported.
When the estate agent tells you that the seller has accepted your offer for the property, the property is generally regarded as being sold. However, there is no legally binding contract until a written contract is signed by both the seller and the buyer. Until that time comes, technically you are still negotiating and either side can pull out for any reason.
When your offer is accepted the estate agent will inform both your solicitor and the seller’s solicitor in writing of the details of the sale. The seller’s solicitor will send a draft contract and copies of the title documents to your solicitor. Once you sign this contract, in duplicate, and your solicitor sends both back to the seller’s solicitor, with the deposit, you have committed yourself to purchasing the property. Then the seller’s solicitor sends back to your solicitor one of the contracts signed by the seller. It is only then that there is a legally binding contract.
Obviously, you cannot do any of this until your surveyor tells you that the property is sound and free from defects and you know where the money to buy the property is coming from, i.e., you have got a letter of loan offer from a bank.
9. LETTER OF LOAN OFFER
Before the signed contracts and deposit are returned to the sellers` solicitors you should check with the bank that all of the conditions in the letter of loan offer have been or can be complied with. For instance, there will be a requirement in the letter of loan offer to take out a life policy for the amount of the loan (a mortgage protection policy). This policy should be in place or “on risk”. If you have a pre-existing medical condition or engage in dangerous sports or activities, it will take longer than usual to put that policy in place. If you leave this until after you have signed the contracts, and cover is refused by the insurers, you will not be able to get your loan cheque and complete the purchase. You could then be sued for damages for breach of contract and you will lose your deposit. Similarly, if there is any delay in obtaining cover this will delay you getting your loan cheque, and result in you having to pay interest.
10. STAMP DUTY
Currently, the rate of stamp duty on residential property is 1% of the purchase price, excluding the value of any contents included in the sale. The VAT on the price of a new house is also excluded.
11. HELP TO BUY SCHEME/HELP TO BUILD SCHEME
The Help To Buy (HTB) incentive is designed to assist first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home.
The incentive provides for a refund of Income Tax and DIRT paid over the previous four tax years, limited to a maximum of 5% of the purchase value up to a value of €500,000 (€600,000 if bought between 19 July 2016 and 31 December 2016). The HTB refund is capped at €20,000. Currently, this incentive is available until 31 December 2021. See; https://www.revenue.ie/en/property/help-to-buy-incentive/index.aspx
12. TAX RELIEF
Mortgage Interest Relief (tax relief on the interest paid on a mortgage loan) has been discontinued for loans taken out after 31 December 2012.
In an auction there is a legally binding contract when the auctioneer’s hammer falls, and the property is knocked down to the highest bidder. If you propose buying a property at auction, you need to have all of your investigations done, survey, investigation of title, etc. before the auction. You will also have to have secured the source of your funding, i.e., have received a letter of loan offer from a bank. Your solicitor will need to have seen the contract and the title documents before the auction, in order to alert you to any problems.
For more information please contact John Duggan at firstname.lastname@example.org.
Property & Conveyancing Law specialist with Callan Tansey Solicitors