Buying an Irish Cottage – Part II
This is Part II of this article – for Part I see – Buying an Irish Cottage - Part I
Most properties advertised have a guide price, an indication of its worth as estimated by the Auctioneer. However, recent events in Irish economy have created an unstable housing market – guide prices can vary widely from the selling price.
The property sale procedure is much like an open auction except that the buyer sets the opening bid. The auctioneer passes this bid to the seller, if there are no other bidders interested in the property the seller will accept, reject or request a higher offer.
If there are other bidders in the market for the same property, the auctioneer will put your bid to them and give them the chance to bid higher or counter offer. All clients who have an active bid on the property are notified and given the chance to place a higher offer. This process of offering and counter offering continues until only one offer remains.
This situation used to be the normal way property was transacted in Ireland during the boom times as demand for property out stripped supply. It is not the most pleasant of transactions as there are many variables that can lead to suspicion and dishonesty such as the fabrication of false bids to raise the price, sellers accepting higher bids after sale agreeing (also known as gazumping) and alternatively, half hearted bidders who pull out after the offer has been accepted. Sometimes bidding is unavoidable but it is preferable to negotiate directly with the seller and decide on a fair price for both parties.
On acceptance of an offer the purchaser usually puts down a booking deposit to signal their serious intentions, this is at the discretion of the seller/auctioneer and is typically 3%-5% of the sale price. It is really little more than a gesture as there are no contracts drawn up at this stage so if the buyer or seller pulls out, the 5% deposit should be refunded. Make sure you receive a receipt for this deposit to guarantee your refund should the transaction fall through at this stage. Drawing up of the contracts should take place some four to six weeks later and the deposit already paid will form part of the non-refundable 10% required on signing of contracts.
On the Auctioneer/Estate Agents side once they have received the booking deposit they should start to issue the sales details to all parties including the respective solicitors so it is advisable to have a solicitor appointed to your transaction at this stage. You should also be finalizing your mortgage arrangements with your lending institution so that they can issue the loan pack to your solicitor. Engineers Report should also be carried out to ensure you are aware of any structural or planning issues with the property.
The Engineers Report
If you are taking out a mortgage to pay for the property, the lending institution will require you to pay for a member of their panel to carry out an engineers report. This is to ensure that the property is worth the amount the institution is going to lend you. However, you will not be able to rely on this report if a problem arises – for this you need to engage your own independent engineer to carry out a full structural report.
A full structural report will include information on potential issues such as:
- Condition of services
- Foundation issues – eg: underpinning
- Damp, rot, infestation
- Cracks etc…
The report may uncover some nasty surprises that would have gone unnoticed. If this happens you can use the information to re-negotiate the sale price or pull out of the sale. It is important to note though that a standard structural report only covers a visual inspection of the property, meaning only defects that are visible and not masked at the time of inspection are covered. An in depth report costs considerably more as it requires tampering with the structure (eg: lifting floor & ceiling boards, drain surveys, joists etc…). Make sure to ask you engineer to be clear about what the report covers before hiring them.
Some solicitor’s fees are calculated as a percentage of the agreed sale price of the property, however these days the advent of fixed price conveyancing fees has driven this cost down significantly. The standard cost is now around €999 + VAT and outlay, the outlay is generally additional fees such as land registry office fees and legal searches. I would advise asking around before engaging a solicitor – as with everything – some are more efficient than others.
If you are applying for a mortgage, you will have supplied the information about the property you are buying to your lending institution at this stage so they can send the formal loan pack to your solicitor. They will look it over and discuss the main terms and conditions with you before you sign the documents.
The seller’s solicitor should issue contracts in duplicate and the title deeds of the property to your solicitor within 4-6 weeks of the issue of the sales details. Your solicitor will then check the contents of the contract to ensure it is as you agreed, if it is not they will amend it and send it back to the seller’s solicitor to be agreed.
When both parties are happy with the contracts you will go into your solicitor’s office to sign them and pay the remainder of the non-refundable 10% deposit. The exchange of these contracts forms a legally binding agreement and you are now well on your way to owning the property. If you are getting finance for your purchase your solicitor will now return your loan acceptance pack to the lending institution.
The solicitors then get to work on the property deeds and once all queries have been dealt with and both parties are happy – a closing date and time are set. You need to make sure your finances are in order with the bank at this stage so you can forward the balance of funds to your solicitor before the closing date. Your solicitor will then attend the seller’s solicitor’s office to close the sale at the agreed time – you do not need to be in attendance for this. At this point the keys of the property can be released to you and you can now have your ‘I survived the Irish property purchasing process and bought my dream cottage’ party – don’t forget to invite me .
Just a little side note on Insurance – if you are applying for finance you will be required to take out insurance in order to secure a mortgage. Here is a run down of the types of insurance:
- Life Assurance – this is to protect the lender’s investment incase you pass away during the life of the mortgage – morbid but that’s business for you! Despite the fact that this is required, some lenders can be slow to inform their clients of this requirement which can hold up the loan cheque which in turn holds up the forwarding of the balance of funds to the solicitor. Another downfall of not being on top of this insurance is that you might have to use the insurance firm tied with the bank for expedience instead of shopping around for the best rate! Nobody’s pointing fingers but commission on life assurance could be a nice little bonus for a mortgage sales person so make sure you get your assurance sorted early!
- Building Insurance – you are not required to insure the contents – that’s your own affair but you are required to insure the building. This is again to indemnify the lender against damage from the likes of fire, flooding, disaster etc…
- Mortgage Protection Insurance – This one is strictly up to yourself – but since the financial institution is being indemnified up to the eyeballs, you might as well look after No. 1 too. Should you loose your job or become incapacitated and unable to meet your repayments this cover will pay them for a specified period of time. The variety of options available under this type of insurance means that there should be an affordable option for everyone. The benefits of it have been clearly seen recently as a result of the recent spate of job losses. Word of warning though – be aware of what the insurance covers, different options have different levels of cover.
For all insurances make sure you shop around, there are some great deals to be had as insurance companies scramble for business these days!
Everybody’s favorite word – Stamp Duty! Stamp duty is essentially a tax paid to the government for changing the documents that specify who owns the property. It is calculated based on criteria such as your status as a buyer (First time buyer, owner-occupier or investor), the property type (new vs second hand) and the floor area or size of the property. Your solicitor should calculate the amount of stamp duty you owe after the closing of the sale and instruct you to pay that amount to the government. There is a new system for calculating stamp duty being put in place at the moment so for full details check out the Irish Revenue website at http://www.revenue.ie/en/tax/stamp-duty/index.html
The last piece of the puzzle is the closing deed which you must sign immediately as there are some strict time limits with regards to stamp duty. At this stage the property has to be registered under your name, which can take months if not years but fear not – the property is still legally yours. Once the property is finally registered the deeds and title are returned to the bank and the process is complete.
Congratulations you are now the owner of your very own chunk of Ireland!
Related Articles: Buying a property in Ireland – Part I