If you read my articles regularly, you know there is big change coming to the real estate industry.
In last week’s article, Better For Buyers, I summarized nine changes that will take place as a result of the National Association of Realtors’ settlement of a federal class action antitrust lawsuit a few weeks ago on March 15.
Many in my industry fear these changes. That’s understandable. But I think they will improve how we serve the public, and ultimately improve the public’s perception of the industry. To me it’s exciting to know that an entire industry will be reshaped and there will be an opportunity to play a part in it.
With that in mind, I began studying the way real estate was bought and sold in various countries around the world. One of those nations was the UK.
It turns out that somebody with considerable prominence in the Arizona real estate community is an expert in UK real estate because that’s where he’s from and where he currently resides.
His name is Mike Orr and he is the owner of The Cromford Report (CromfordReport.com), which “provides detailed information to track the history and current status of the Greater Phoenix residential resale market and offers unique insight into its future direction. Updated daily and usually published online within a few hours, our goal is to present data that is timely, informative and easy to understand – data not available anywhere else in this level of detail or immediacy.”
I have followed Mike for years. He really knows his stuff. A few weeks ago Mike received a question about what real estate transactions are like in England. He responded with 38 differences.
I thought the differences were fascinating, so I hand picked the 20 that I thought my readers would be most interested in. One of my favorites is number seven – gazumping and gazundering?! In Mike’s own words as published in the Cromford Report…
1. Commissions are typically 1% to 1.5% payable by the seller to the “estate agent” who advertises the property. The better the agent the higher the commission, generally speaking.
2. The buyer is usually unrepresented, but there are a few specialist buying agents, used only by very rich people to find suitable properties.
3. Caveat emptor applies – the seller is under no obligation to reveal defects in the property. However, most are reasonably honest.
4. There are no title companies or title insurance.
5. There is no MLS. Properties are advertised on a variety of web sites, dominated by Rightmove and Zoopla, which cover the whole country.
6. Parties can back out of the agreed sale until exchange of contracts, typically a week before closing. After exchange of contracts the buyer will lose their deposit if they back out. Deposits are usually 10%.
7. Gazumping and gazundering are common in times of fast price changes. These involve the buyer or seller changing the agreed price before contract exchange.
8. Both buyer and seller use a solicitor to represent them in preparing contracts. Each party has their own solicitor, they cannot share one. A solicitor is a kind of lawyer, but they aren’t qualified to represent you in courts like an attorney would be. Sometimes the lender will require a third solicitor to represent them. These can add a lot to closing costs.
9. The solicitor has a fiduciary duty to their client. Agents do not, as they are just marketing the property for the seller and often exaggerate or tell outright lies. Estate agents are not held in high esteem in the UK, but solicitors are usually respected.
10. Estate agents have no required education and are not licensed. Anyone can be an estate agent just by choosing to call themselves one. Wise sellers will carefully choose an agent based on reputation and local knowledge.
11. No formal contract is used in making an offer. The offer may be just a phone call followed by an email confirmation, voice-mail or text message.
12. Property titles are recorded in a national database – the Land Registry. It can take months for a purchase to be recorded. Loans are recorded against the property along with other restrictions or covenants that may place a heavy burden on the new owner.
13. Closing takes 3 to 5 months typically. Many things can and do go wrong and sales often fall through because something odd is discovered after the sale is agreed.
14. It is common for the seller to show the property, rather than relying on the selling agent attending.
15. There are no fixed rate mortgages for more than 5 years. Most mortgages are variable rate, but some are called fixed rate which means the rate is held steady for a short period up to 5 years.
16. Lenders will usually require a formal valuation, and these are often quite expensive and usually paid for up front. The borrower pays for this.
17. There are no government guarantees on loans, and nothing like FHA, VA, FANNIE MAE or FREDDIE MAC.
18. Down payments are usually larger, typically at least 10% and often 25%.
19.Very few properties have air conditioning or parking of any kind, as they were built before car ownership was widespread.
20.The median home is about 60% of the size of the median home in Arizona. (1200 sq. ft. versus 2000 sq. ft.) but it will probably be built with more substantial materials (stone, brick, slate) and expected to last a lot longer.
The modern American real estate system traces its roots back to the late 1800s, but started to really take shape as the model we know today in the early 1900s. Many people in my industry can’t imagine working in a system that is likely to become so different than the one that has existed so long.
Have you heard the term “My way or the highway”? Some in my industry are determined to preserve as much of the status quo as they can. They are rejecting the opportunity to reshape an industry that needs it by refusing to take a fresh look at everything. Those who think small are going to learn in a big way that…
Our way isn’t the only way.
