A Closing Date is a peculiar form of selling a property in Scotland.
It is designed to maximise the price that a Seller can achieve. It is also the fairest way to settle competing offers allowing buyers a chance to put forward a formal offer.
How does it work?
The Selling Agents will set a date and time by which all prospective purchasers must submit a written offer for the property; typically this tends to be 12 noon on a specific day. Normally all prospective purchasers, particularly those who have lodged a formal Note of Interest in the property, will be advised of the Closing Date with plenty of notice.
A Closing Date works in favour of the Seller by playing upon the uncertainty faced by the prospective purchasers. It also allows fuller consideration of an offer and selling agents should qualify buyers by checking their ability to proceed. Although generally a seller will be tempted by the highest offer they will rely on the selling agents for advice on which offer to accept. It is sensible for the offer to be accompanied by a letter of explanation from the offeror’s solicitors setting out the purchasers circumstances and ability to proceed.
A closing date is in effect a blind bidding system and there are strict rules for Solicitor Estate Agents so the purchasers can rely on this being handled in a fair and professional manner.
Some Key Points to Note on Closing dates
- A prospective purchaser will not know how many other parties are interested in a property;
- A prospective purchaser will not know how many other parties are actually going to offer for the property;
- A prospective purchaser will not know the circumstances of the other parties- are they cash purchasers? Do they need to sell to buy?
- A prospective purchaser will not know how much the other parties are going to offer;
A Seller is not obliged to choose the highest offer at a Closing Date and indeed is not required to choose any of the offers. As mentioned whilst typically the main factor in consideration is likely to be the Price there are a number of other factors that a Seller will consider when picking the successful offer. Paramount among these additional factors is the ability of the Purchaser to progress the transaction. A cash offer that is not subject to the purchaser obtaining any mortgage finance is far more desirable than an offer which is subject to either mortgage funding or indeed the sale of another property.
What is a Cash Buyer?
In Estate Agent Speak, if a purchaser has the funds to complete the sale without relying on obtaining a mortgage or selling their current property we say they are able to make a ‘Cash Offer’ (also known as a ‘Clean Offer’) and they are known as a ‘Cash Buyer’. If the purchaser requires even a small mortgage it will mean the purchase is likely to be conditional on mortgage approval and the inevitable delay in concluding missives while the funds are arranged. It is therefore important for a prospective purchaser to make a full disclosure of their circumstances if they are to have any chance of being successful at a Closing Date.
Things for a Purchaser to consider when instructing a Solicitor to submit their offer at a Closing Date;
The price is the most important thing to consider when submitting your offer. Many clients ask us for a set formula or figure when trying to decide how much they should offer for a property e.g. should this be 10% over Home Report value? The inconvenient truth is that there is no magic formula. Anyone who tells you that there is a set figure or mathematical equation is misguided. The truth is that you must submit the highest offer that you are happy to pay for the property. That is very different from the highest offer you can afford! If you are successful at a Closing Date you may never know how much you were over the second ranking offer submitted for the property indeed you really don’t want to know!; the second bid could be £50,000 lower than yours in which case you have potentially paid £49,999 more than you had to in order to secure the property. Equally if you are the second place offer you wouldn’t want to find out that you missed out on the property by a narrow margin and could have been successful if you had only bid £10 more. If an under bidder tries to increase an offer after the closing date the selling solicitors would need to advise the seller that this is unethical and a breach of the closing date rules and that if they entertain this second bite at the cherry the will need to find another Solicitor as they will need to withdraw. The seller should also ask themselves is a party acting in bad faith likely to come good and they may find that the sake falls through weeks or months later leaving them with a blighted property and perhaps dashed their plans for an onward purchase.
NO regrets- your offer needs to be the figure that if you are successful you are happy to have paid and will not look back in future wondering whether you paid too much for the property but also the figure that if you lose out you won’t regret not placing a higher offer that you could have afforded.
2. Date of Entry
Typically the standard time frame from submitting an offer to the Date of Entry (the date upon which you get the keys) is around 6 to 8 weeks. The Seller will be expecting this time frame- any time frame shorter or longer needs to be given consideration as a Seller may find this off-putting.
If you require a mortgage to fund your purchase you must ensure this is clear in your offer and your offer is subject to you obtaining this mortgage. If your offer does not state that it is subject to you obtaining a mortgage when you require one you may find yourself legally bound to a transaction without the financial means to proceed; this can lead to severe financial penalties. It is worth bearing in mind that any mortgage lender will only use the lower of the price paid or the Home Report value when setting the Loan to Value rate of your loan. So if you purchase a property at a price of £250,000 which has a Home Report value of £225,000 you’ll need to find the extra £25,000 from your own funds in addition to any deposit- this cannot be mortgaged.
4. Do you need to Sell your property to fund the purchase?
If you require to sell your existing property to fund your purchase again you’ll need to ensure this is stipulated in your offer. Whilst this can make your offer less desirable you can combat this by providing plenty detail regarding your sale such as- are you on the market? Have you secured a purchaser? Have you concluded missives/ exchanged contracts? Have you agreed a Date of Entry? The more clarification you can provide the less apprehensive a seller will be in accepting your offer.
As Hastings Legal are Solicitor Estate Agents we are bound by a strict Code of Conduct issued by our professional body, The Law Society of Scotland, in relation to Gazumping, Gazundering and Closing Dates; you can read more here
© Hastings Legal June 2020
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