Tuesday, June 17, 2014

Full asking price and the end of Caveat Emptor?

Well, I've finally found somewhere to rent until the contract on my new house is exchanged. All looks good. I've also just been informed by the landlord of my old place (2 Moorstock Farm Cottages, Sellindge) that he has managed to sell it for the full asking price. 

I'm pleased for him but I'm a bit surprised by this.

I met the estimator for the property who came up with the initial price range. The house is a good size, the neighbours are lovely and the area is fine. After they came up with a price range, I asked 'Had they considered the defects?' ... they did not seem to think it mattered.

There are a couple of defects to the property which are known to the landlord and which are known to the estate agent I met.  Firstly, about a third of the garden is owned by the neighbours (the land boundaries need sorting). Secondly, the power for next door runs directly under the garden (this has potential building reg issues). Thirdly, the house has no independent water supply from next door and no contract with any water supplier because it has no meter (the road actually needs to be dug up and an independent supply carved off with a meter from the water mains). Fourthly ... oh, now there's a long list of minor inconveniences.

The landlord (the owner) is a nice enough chap but seems to think all these issues are someone else's problem. The water supply is next door's problem despite the property not having a contract with a water supplier. The power issue is next door's problem - it's their power after all. The land issue is ... well, next door's problem.

In my opinion, these are all his problems. All of these in my view should materially affect the value of the property. However, when I met the agent showing prospective buyers around the property and despite him knowing all the defects, I never heard him mention any of these. Maybe they provide this all in a fact sheet but at least one potential buyer I spoke to was completely oblivious to all.

So why does this surprise me? Well, house buying in the UK is no longer under the maxim of caveat emptor or buyer beware. Since 2012 it has been covered by the Consumer Protection from Unfair Trading Regulations (CPRs) of 2008. This means it is no longer the responsibility of the purchaser to "discover" any problems about a property or location but also a duty of the agents to disclose anything which might materially affect the price a buyer might offer.  CPRs expose agents to prosecution if they do not admit knowing something that might influence a price or choice of the buyer.

Having a garden which isn't actually all yours, or a major household power supply running under your garden or no independent water supply are all defects which I would imagine would materially effect the price of a house. Maybe they don't matter ... I'm no property expert. Or possibly, people are still operating under the idea that housing is covered by caveat emptor?

The amount of money involved is not trivial. Back in March / April, I was offered the property for £415,000 but refused unless all the defects were resolved. They weren't and hence I found somewhere else. Maybe the market in housing is so hot that people don't care and are just desperate to get on the ladder? It'll be interesting to find out what happens here.