If a property attracts a lot of interest, the seller must decide which offer to accept. He or she will usually want the best price, although their decision may be influenced by other factors such as whether the buyer can proceed straight away, if they have a property to sell and how they intend to finance the purchase.
It can be a difficult decision to make for the seller. He or she doesn’t want to accept one offer and find the buyer cannot proceed, resulting in them losing an alternative buyer and having to start the process again.
Therefore one option for the seller is to speak to their Lawyer about the possibility of entering into a Contract Race. A Contract Race is when multiple contract packs are drafted and submitted to interested parties. The process will be expensive given the additional work involved, and there is also a real risk that a buyer may not proceed if they are in a Contract Race.
What’s involved in a Contract Race?
The seller’s Lawyer will provide an overview of the process and also a quotation in respect of the additional fees. It’s worth bearing in mind the fee will usually be a lot higher, and at the end of the process there’s no guarantee that a buyer will proceed as the transaction will not be legally binding until the contracts are exchanged.
If the seller is happy to proceed, their Lawyer will draft a contract pack for each interested party. All parties will be advised by the seller’s Lawyer that they are in a Contract Race and must formally agree to participate. The first individual that unconditionally exchanges contracts will be the one who secures the property.
From a buyer’s perspective this can be a stressful situation that causes additional pressure. The buyer will usually be charged additional fees given the urgency of the matter. The buyer will also be informed of the process, and if they are buying with a mortgage, will need to undertake searches, obtain a survey and a mortgage offer before being in a position to exchange.
If the buyer is not funding the purchase with a mortgage, they may take a view not to obtain property searches or a survey in order to speed up the process and be the first to exchange contracts. As a buyer you must be informed of the risk of undertaking such a strategy, the impact and the potential outcome. Your Lawyer will also inform you of the importance of following the process and obtaining replies to all enquiries before exchange of contracts.
Once the contract pack has been received by the buyer’s Lawyer, they will obtain searches and raise any enquiries on the title. The buyer’s Lawyer will also be informed how many contracts have been submitted to interested parties and any specific requirements. It’s not a requirement that all contracts are the same, and each buyer will only see their own contract and any special conditions.
If the seller subsequently decides not to proceed or wishes to accept a higher offer from a new buyer, their Lawyer must firstly withdraw the contracts from those involved in the Contract Race before submitting any new contracts to the new buyer. Unfortunately, the initial buyer does not have any recourse and may find themselves with an expensive legal bill for works undertaken.
A Contract Race is not usual and all aspects should be considered before you agree to enter into a race. It can be expensive and you could still find yourself at the end of the process in the same situation. You should ensure you fully understand the process involved and budget in respect of additional fees. It’s also important to ensure that your Lawyer is aware of your requirements and can meet your expectations and deadlines before proceeding.