Different ways to buy a home

Most first-timers buy their home by ‘private treaty’ on the open market, but it’s worth knowing that there are other ways to buy a property.

It’s likely that you’re going to buy your first home using the most common method of purchase, known as ‘private treaty’.

This means you buy on the open market from a seller who is represented by a local estate agent, with legal professionals taking care of all the paperwork.

But there are other methods of buying a home, too. Find out more with our guide…

Buying via private treaty

As we’ve touched on, this the most common way to buy a home. It’s when a property is put up for sale on the open market at an advertised price.

Bear in mind though we’re referring to transactions in England & Wales; there are some key differences if you’re buying in Scotland.

With private treaty, you put in your offer via the seller’s estate agent. This might be for the asking price (or lower if you think you have grounds to shave some money off).

Property transactions involve a legal process called conveyancing. So, once you’re ready to make an offer, engage a solicitor or licensed conveyancer to act on your behalf.

You can do the conveyancing yourself. But if you do, you’ll almost certainly be adding ‘worry’ and ‘stress’ to your list of home-buying emotions. 

The DIY route is usually only suitable for very experienced buyers and sellers.

At the offer stage it’s good to have a ‘mortgage in principle’. This is when a bank or building society confirms how much it will lend you based on your financial details. 

Estate agents and sellers see a mortgage in principle as evidence you’re serious.

If your offer is accepted – (yay!) – things really start to get busy. This is when contracts are issued. 

Your solicitor/conveyancer will now conduct ‘searches’ relating to the property. This is to make sure there are no surprises lurking in terms of planning developments nearby that might affect its value.

Searches will also cover whether the building is listed, who is responsible for the drains and sewers, and whether previous use of the land puts it at risk from landslips, subsidence or contamination.

At this point you’ll need to firm up your mortgage in principle so it can pay for the property.

The bank or building society will conduct a valuation to satisfy itself the property is worth the asking price. You’ll usually have to pay for this to be done.

A valuation does not provide information on the condition of the property. 

For this you’ll need a survey – and different types are available

The results should either reassure you you’re buying somewhere in good repair or highlight any problems so you can negotiate a reduction in the price.

The next step is to exchange contracts, at which point the purchase becomes legally binding. 

For the exchange to take place, the searches must be satisfactory, your mortgage must be in place, and you must pay a deposit, usually 10% of the price. You’ll also agree a completion date.

If you pull out after exchange of contracts, you’ll lose your deposit.

You should have buildings insurance in place before you exchange as that’s when you become liable for the property.

On completion a few weeks after exchange, the final funds are paid, you get the deeds and the keys, and you can move in.

Buying at a traditional auction 

With a traditional auction, you attend a live event and bid on a property along with others in the room. 

If your bid is accepted, you put down a 10% non-refundable deposit and exchange contracts immediately. You complete 28 days later.

This route is popular with experienced cash buyers. It’s not suitable for first-time buyers.

Buying with the Modern Method of Auction

This option is growing in popularity as it is more flexible than the traditional method. 

The auction is usually held online (think eBay), although you can still view the property during the auction, which usually lasts between 14 and 21 days.

You can download a buyer information pack containing legal documents, the results of local searches and an energy performance certificate. You should get your licensed conveyancer or solicitor to review this.

Bids are required by a deadline and you can see what others are offering, so you can up your bid to remain in pole position.

If your bid is successful, you sign a reservation agreement and pay an upfront non-refundable fee. It’s usually between 2.5% and 4% of the sale price, or it may be a fixed sum of say £5,000 plus VAT.

The fee is split between the auctioneer and the estate agent – you don’t pay a deposit to the seller. Only at completion do you pay the entire asking price.

Unlike the traditional auction route, where you exchange immediately, the modern method requires exchange within 28 days, with completion up to 28 days later – so the maximum time from placing the winning bid to getting the keys is 56 days. 

The modern method gives sufficient time to raise a mortgage, so it is attractive to more potential buyers, including first-timers, than the traditional alternative.

If you’re tempted by the modern method of auction, you need to explore how it works, including the timescales and fees.

Inheriting your home

If you inherit property, you won’t have to pay stamp duty. 

But it’s worth watching out for capital gains tax (CGT). It’s not charged when you actually inherit, but you might have to pay CGT on any profit you make when you sell if you haven’t lived in the property as your main residence.

The profit is the difference between the value when you inherited and what you get from selling it. There are various tax allowances that can be used to reduce any tax liability, including the current £12,000 CGT annual allowance which we all get. 

If you find yourself in this situation – inheriting a property, not living in it, then selling – get advice from a tax consultant or accountant.

Remember, if you inherit a property, you become a homeowner and lose your first-time buyer status. 

That means you no longer qualify for first-time buyer stamp duty relief.