You may have come across the term ‘Memorandum of sale’ while selling or buying a property but maybe unacquainted with it or its importance. For any prospective buyer who looks to submit a mortgage loan application or a seller who wants to sell a house quickly, you must obtain this important document. This post explores the memo of sale in detail while explaining all you need to know about it.
What is a Memorandum of Sale?
A memorandum of sale is a simple document containing written confirmation of every important detail of a property transaction. It is drafted by an auctioneer, home buying company or the estate agent after a sale agreement. The document is then sent via email or post to solicitors representing the seller and buyer.Get an Instant Quote >>
In most cases, memorandums of sale contain the following important details:
- The agreed cost of the property
- A full address of the property in question
- Important details of the seller and buyer such as their phone numbers, current address and email
- Complete contacts and details of solicitors representing the seller and buyer
- Land registration number of the property
- Whether it is a leasehold or freehold property and how many years are still on the lease if it’s a leasehold.
- If it’s a quick cash property sale
- The amount of deposit to be paid and whether it has been confirmed or verified.
- In case of an auction sale, information must be given as to the exchange date
- Where applicable, the mortgage lender and if there is principle decision in place.
- All the relevant details of the mortgage advisors participating in the sale
- Confirmation of ownership which should be done prior to property listing
- Whether the purchase of the property is under a company name
- Expected completion and exchange dates
- Any special condition in the sale like cash advance, an option agreement or delayed completion.
- Any legal issues that require investigations, for example, rights of way
- If the vendor is purchasing another property and if so, all the details of the purchase
- Fittings and fixtures involved in the sale
- Any additional detail relevant to the sale
Generally, the more the data, the better. This essential document should be drawn as soon as possible for the sale to kick off.
Who provides a memorandum of sale
A memo of sale is put together and given by the seller’s estate agent. The estate agent is to be paid a commission from the property’s sale; hence it is realistic that they provide the document.
When is a memorandum of sale issued?
As the seller, your estate agent is responsible for drafting and issuing the memorandum. The agent will draft it immediately you receive or make an offer and you accept it. The memo should be received soon after negotiating verbally and agreeing on the sale. However, neither the buyer nor the seller is obligated by law to adhere to the memo’s conditions; therefore, it can change upon further negotiations.
Why is a Memorandum of Sale Necessary?
The memo of sale is a crucial document as it confirms when a property sale or purchase is agreed upon by the seller or buyer. It is vital since, at this point, it becomes an official document and the agent will take your property off the market, which is crucial to the buyer as it implies less chance to be overcharged.
Memorandums of sale are very important documents that contain all the relevant data necessary for a property transaction in one place. With this document, you save a lot of time wasted in moving around when it comes to selling a house.
Immediately the sale is confirmed, the estate agent should circulate the document as soon as possible. By this, the sale can start immediately and efficiently. However, this is not legally binding, nor is it a complete confirmation. Therefore, the buyer can always withdraw the sale anytime, even with the document. To avoid such an incident, keep every information open and be honest from the start. Transparency is important in every legal transaction. Keep in mind that you don’t have to sign the Memo of sale.
What Happens After You Send the Memorandum of Sale?
A memorandum of sale is the very first and among the most important stages of a property sale process. It implies that your estate agent, in case you are using one, is now authorized to change the listing to sold-subject to contract (STC) or under offer. As soon as all solicitors get hold of the document, the actual process and work can start. However, this should not mean that everything involved is settled.
- Buyer Checks: make sure your agent checks the buyer’s financial state before proceeding with the process. This means evidence of a mortgage proposal in the last two months, sometimes referred to as an Agreement in principle (AIP) or a Decision in principle (DIP). You can also request for proof of deposit, so you are sure the buyer can afford to buy the property before changing it to sold on the property listing.
- Conveyancing: both solicitors start conversing with each other to begin the process. If they have not already taken any relevant ID checks, they will do this and request funds on the account to begin their work.
What property forms are required?
The following property forms should be filled out:
- TA6 form: which is a form containing all the property information
- TA7 form: a fixtures and contents form
- TA10 form: if you are selling a flat, you will need a TA10 form, typically a leasehold information form.
What your solicitor will also require
Apart from the TA6 form, TA7 and the leasehold form, your solicitor will need two forms of authorized identification, guarantees, warranties, building control documents, planning permission, among others. Besides, he or she will require the title plan or any other important information that will aid in the process.
With everything ready, you can start the arrangements with the mortgage company. This ensures that mortgage funds may be drawn at any point in the contract exchange.
What searches are performed
The buyer’s solicitor will perform certain searches like environmental, drainage or water, local authority, chancel repair, brine or common registration, clay as well as coal or tin mining searches.
The buyer can also conduct some surveys on the property. Although there are several such surveys, the main ones which should be done by an expert form the Royal Institute of Charted Surveyor include:
RICS General Condition Report
Although it’s a minimum requirement in many mortgage companies, this report is essential. It involves a survey to check the whole property in general without paying attention to the tiny details.
A qualified surveyor from RICS spends an hour or so on the property. However, the time spent on the property depends on the size of the property. The surveyor will raise any concerns with the property. However, this is not the best survey if the house is in critical condition.
RICS Homebuyers Survey
This is a very detailed survey that reveals every important information and issues with the property in question. For example, this survey report reveals structural issues, damp or any other issues with the house. A qualified surveyor will report these issues without disturbing the seller, like moving the furniture to analyze the area.
A homebuyers survey includes a valuation that uses the HM Land Registry information and includes any arising issues. This may mean that a buyer may have to renegotiate the purchase price downwards in serious conditions that will need repair. However, it is the seller’s choice to reduce the price. If the seller agrees to correct the price, there is no need to correct the memo of sale and passing this information to the solicitors involved is enough.
RICS Structural or Building Survey
Building survey is the most severe survey that buyers will opt to have peace of mind. Although it may be expensive to conduct a building survey, a buyer will prefer it if the house is old, it has many structural conditions and has not been refurbished for many years.
The surveyor will conduct a thorough survey similar to a forensic approach to produce an extensive report on everything. The buyer will research the cost of refurbishing the property to a good state and communicate it.
An example is with a property in leasehold where checks will be conducted with the management company. The solicitors will converse with each other and raise any concerns. Immediately they have all the data; they will summarise everything and refer to this as a report on Title.
Exchange of contracts and completion of sale
If the survey returns fine and there are no other inquiries, both solicitors will set a date to exchange the contracts and complete the sale. A Transfer (TR1) form will be sent to you to sign it and send it back.
The exchange of contracts and completion of the sale may happen a couple of days, weeks or even months later. However, it can still occur on the same day, especially since a lot of buyers and sellers prefer to exchange contracts and complete sale immediately after the process is completed.
The estate agent not sending a memorandum of sale
If you are having a problem with the agent failing to send a memorandum of sale days after the sale is agreed on, then this is not a very good sign that things will proceed to the end. It may not necessarily mean there is an issue since there are few things resulting in the delay. They may be:
- The seller is having trouble obtaining a solicitor to send the details across
- The estate agent is either slow or dis-organised
- The seller is considering other viewings or is waiting for more viewings before committing to the sale.
If even after a week of a sale agreement, the seller or estate agent is not sending the memo, this may be a sign of a slow and frustrating purchase process. It’s even more painful when the memo is sent a few days later, so you realize they are slow and the process will take more time than you expected.
What to do when you are not receiving the memorandum of sale
The seller should send the memo a few days after a verbal agreement on the sale. If you are not receiving the document almost a week after a verbal sale agreement, then it’s time you take a step. Contact the seller or estate agent if there is one to enquire about it. Ask when and what time to expect it and wait patiently.
Although the delay is not a good sign, it may be as a result of some unavoidable circumstances, so it’s best you give them some extra time. If they are not sending it on the communicated date, you can still inquire. However, note that a verbal sale agreement does not legally bind you to the purchase. You can therefore walk away to another sale, especially since the concern is not from your side. However, may communications to inform the seller or agent of your decision before you proceed.
Property sale chain complications
A chain break is among the causes of a memo of sale to fall through. It happens when somewhere along the property chain, on party drops out, causing other involved parties to be at risk of falling apart. This causes lots of frustrations and upset as the dream of acquiring a house may slip away in the buyer’s hands.
A property sale chain occurs when a property buyer and seller are tied together because the purchase depends on another different transaction. The potential buyer is not always selling his or her house to buy yours.
However, the risks of the other transaction will not necessarily fall to you. Besides, there are different ways to overcome a situation where a dependent sale falls through. The key factor here is communication, as it will help solve the issue. Solicitors who have enough experience will handle such a situation best and avoid problems in time. Ways to eliminate the issue include:
- Analyze the problem and understand what the problem is. If the problem is related to money, alternative funding, for example, borrowing from family or friends, can be sourced.
- If the property was on-demand, the agent may choose to replace the buyer. At this point, a good number of the paperwork is already done, so an experienced solicitor will know how to go about the conveyancing quickly.
- You can also choose to drop the price for the buyer.
This whole process may be frustrating; hence you should remain patient and handle things in a calm way. watch out on ‘gazundering’ where the buyer may decide to drop the price at the last minute. If it happens, you should back off from the transaction.
Other common issues with a memorandum of sale and how to solve them
Apart from the chain break, there are other issues relating to a memo of sale. One common issue is how long it takes to complete a transaction relating to the memo of sale. A completion date is postulated as four weeks after exchanging the final contracts. However, the uncertain nature of the property transaction may imply several delays between the final stage and the memorandum. To avoid such delays, hire a competent agent and experienced solicitor to help in the buying or selling process.
Since the memorandum is not a legal binding paper, a party can choose to withdraw and there is nothing you can do about it. There are no penalties for withdrawals, hence no reassurance that the sale process will proceed to the final stage. Although you cannot eliminate the possibility of a fall, being transparent and organized during the process will help.
If you are buying, be transparent on your financial position and obtain a mortgage agreement in principle prior to the process so you look at properties that you can be financed for. Besides, go for houses that are within your budget to save you the finance troubles. When selling, be considerate of the price and explain every important detail, especially the property’s state.
A memorandum may seem overwhelming as it involves a lot of details and forms to fill out. However, the benefits of acquiring the document make it worthwhile, and taking your time to familiarise yourself with this document will save you a great deal. It’s important that you seek legal guidance if you feel the urge to and understand everything that is involved in a memorandum.
The document is not only important to the process but will also help you sell or buy your property quickly. With a competent estate agent and an experienced solicitor, you will sell your house quicker than you expected. If you are buying, then your dream of acquiring a house will come sooner than expected.Get an Instant Quote >>