The property industry is no stranger to a head-scratching lexicon. When it comes to buying a new home, whether you are a green first time buyer or you have a bit more experience in buying and selling, here is a quick glossary of the five most often used – and frequently misunderstood – purchasing terms which estate agents in particular love to throw about with abandon.
When a property is listed with an asking price referred to as the “guide price” this means an estimated value that the vendor would like to achieve. This may be the minimum they would need to ensure that they can purchase their next property, or there may have been differing opinions between the estate agent and vendor as to the value of the property, so a guide price is a good middle ground. An alternative phrase – offers in the region of (or OIRO) – essentially means the same thing.
When a property is being sold via auction, the guide price refers to the price at which the bidding will begin and buyers anticipate that this is a starting point rather than a likely final purchase price. The vendor will have agreed a reserve price with the auction house which the property will have to reach otherwise a sale cannot take place, although this figure remains confidential.
When a property’s market value is not clearcut, setting a guide price can also be a good way of testing the water or bringing more buyers through the door than if the asking price was set at the very maximum the property could hope to achieve.
When a guide price has been set, always feel free to negotiate on your offer price, as you would with any property purchase. Particularly if the property has been on the market awhile or needs a lot of work.
Offers in excess of – OIEO
As the name suggests, when a property is marketed with an asking price of offers in excess of, this means that the vendor will, in theory, only accept offers over the specified price and is unlikely to accept anything lower.
Similarly to properties marketed with a guide price, agents will often market a property with an offers in excess of asking price if it has been difficult to accurately value, to generate more interest, or as a compromise with the vendor if they are seeking to sell the property for more than the agent feels it will achieve.
A competitive asking price with the caveat of OIEO can also work well for properties going to auction or being sold via open house arrangement to encourage bidding wars between interested buyers.
The Scottish property market predominantly sets an asking price of ‘offers over’ and goes to final bids so prospective buyers know that the price quoted is a starting point rather than a final offer price.
Sold subject to contract – SSTC
When you see a property pop up on Rightmove or Zoopla or on an estate agent’s own website as “sold subject to contract”, this means that an offer has already been accepted on the property but that contracts are yet to be exchanged. As such, the sale is not legally binding and either party could pull out.
Whilst it may be annoying to see a property you really like the look of which is unlikely to be yours, there is no harm in getting in touch with the estate agent to register your interest in case the sale doesn’t go ahead. Agents tend to keep these listings online just in case the sale does fall through, whether that be because a mortgage agreement has been rejected, a survey has thrown up something unexpected or someone has simply changed their mind about the purchase. A buyer in a chain may also have to pull out of an onwards purchase through no fault of their own if the purchase is dependent on them selling their own home first and that sale falls through. If you are a chain free buyer, always make sure you mention this to an agent marketing the property as chain free and/or cash buyers are always popular!
If you have agreed an asking price with a vendor and then find out that another buyer has come in with a higher offer which is subsequently accepted, this is often referred to as “gazumping”. Whilst this is highly annoying for the original buyer, particularly if they haven’t been given the opportunity to make a counter offer, legally the vendor is allowed to do this until such time as contracts have been signed.
This can also happen in reverse of course, if the vendor has accepted an offer from a buyer only to have the offer reduced at the very last minute prior to exchange of contracts. If the buyer is unwilling to negotiate, this means the vendor needs to accept a lower price if they are in a rush to sell, or start the process all over again with a new buyer. This is referred to as gazundering, and whilst a buyer may have a valid reason for dropping their initial offer price such as the survey or local searches throwing up an unexpected issue(s) with the property, if they are simply looking to secure a better deal by putting the vendor on the spot at the last minute this is considered very bad form.
Loan to value – LTV
Once you are on the hunt for your dream home you’ll more than likely need to start looking into mortgage arrangements to work out exactly how much you can afford to spend. Once you start speaking to mortgage providers, the term loan to value or “LTV” will start coming up.
Essentially the loan to value is the percentage of the mortgage loan you will need to take out in comparison to the total value of the property. Whilst you can purchase a property with a 5% deposit, most mortgage lenders request a 10% deposit, and generally the bigger your deposit, the better mortgage rate you can achieve since there is less risk involved for your lender. So, if you plan to purchase a property of £250,000 and you have saved a 10% deposit of £25,000, the loan to value percentage for your mortgage will be 90%.
If saving a deposit of 10% or more is going to be out of reach, you could also consider a shared ownership arrangement or the government’s help to buy loan, both of which could get you on the property ladder sooner if you meet the relevant criteria.
Disclosure: This is a featured post.