Many of those going through the property market find themselves part of property chains, but it’s not always entirely clear what they are or how best to manage them.
How can you ensure that your property chain doesn't become a chain of fools? We’ve tried to supply some answers to frequently asked questions.
A ‘property chain’ occurs when a string of buyers and sellers are linked together because each person’s sale or purchase depends on the transaction of the others.
At one end of a chain is a person who is buying property. At the other end sits a property-seller. In between are the links of the chain consisting of people who need to either buy or sell properties.
This usually means that a property-buyer must wait until their existing property is sold before they can use the proceeds to complete their purchase. A property-seller, on the other hand, can only complete their transaction after their buyer successfully sells the house they’re vacating.
Property chains must all be completed on a single day, known as ‘completion day’.
A simple four-link chain would look like this: Aaron buys Beverly’s house. Beverly uses that money to buy Carl’s property. Carl then uses the proceeds from his transaction with Beverly to purchase Delia’s house. Or:
So, even first-time buyers can find themselves at the start of a property chain.
The main benefit of being part of a chain is that it offers a realistic way to buy a new property when you don’t have a massive cash reserve at hand.
Since most of us don’t have a large sum of money just sitting in our bank account, we need to first sell our existing property before using that cash to purchase our next property.
Calling it a ‘property chain’ is just giving a fancy name to a fairly common situation.
But being part of a property chain can have many disadvantages, too: the BBC reports that one in three property chains falls apart.
On the most basic level, chains are only as strong as their weakest link -- and property chains can only move as quickly as their slowest transaction.
If someone in your chain is particularly slow in doing what they need to do -- responding to calls, scheduling surveyors, meeting with solicitors -- then the entire chain slows down.
Property chains also involve many different actors, the sheer number of which increases the chances that something could delay the transaction. Estate agents, mortgage lenders, legal firms, and surveyors -- they can all be part of a chain.
As a whole, that means there’s a high risk that your chain could collapse and you could lose money.
For example, on one end of the chain, a seller could change their mind and decide not to sell. Or, on the other end, a buyer might not be able to secure a mortgage. Or, among many other possible problems, one of the properties in the chain could turn out to have structural problems.
If you find yourself in a chain, you can take some steps to ensure it keeps moving along.
Ensure that you’ve got control of everything on your end -- scheduling appointments, keeping receipts, and staying up to date with your correspondence. Perhaps most important of all, make sure you have your finances sorted as early as possible.
The better you’re able to build and sustain the relationships with others in your chain, the more you’ll be prepared for any contingencies.
Build on those close relationships by offering to step in if anyone needs help with their own transactions.
There’s always a risk that just one broken link in your chain could prevent you from completing your deal, even if you’re able to hold up your end of your transaction.
If the chain breaks due to someone else’s transaction, be sure to speak with the others in your chain so you know what the problem is before you withdraw from the chain altogether. Perhaps there’s a way to salvage the situation.
Gazumping when a seller accepts a higher bid at the last minute after already having agreed on a price with a different buyer, and gazundering, when a buyer suddenly lowers their offer in the final stages of a transaction, are common culprits in the collapse of property chains.
You can also take steps to reduce your risk, such as having sufficient savings to cover expected (and some unexpected) costs, securing a firm mortgage offer, or selling to a buyer who isn’t in a property chain.
Some property advertisements refer to a ‘chain-free property’.
These transactions are exactly what they say: the houses are not part of a property chain so they’re generally available for you to move into as soon you’ve completed the purchase.
Chain-free transactions certainly aren’t guaranteed, but their chances for failure are lower because they’re not dependent on the seller’s purchase to go through.
Conversely, because your seller will likely be in less of a rush to complete the transaction, they could also be more willing to wait for a higher offer or even take the property off the market altogether.
Chain-free transactions are popular among first-time buyers who use the extra flexibility to purchase a new-build home directly from a developer.
You can take steps to reduce the chances that you’ll get stuck in a property chain.
Maybe you’re selling your house and you’re lucky to have multiple offers. Why not simply choose to sell to someone who isn’t a part of a chain, such as a first-time buyer?
Or if your prospective buyers are all in property chains themselves and you’re willing to live in rented accommodation for a while, you could sell now and wait before purchasing a new property. Then when you re-enter the marker, you’ll be ‘chain-free’, which grants you greater flexibility.
Of course, if you’re a buyer but not a seller, you could also purchase a new-build property straight from a developer.
But it’s true that it can be a bit more challenging to avoid property chains altogether when you’re a buyer rather than a seller.
Still, you can try to ensure that at least you’re not part of a long chain.
For instance, you could try to find a home that has a short, or non-existent, ‘upward chain’.
An upward chain is a property for sale whose seller doesn’t need to complete the transaction before buying their new home.
Upward-chain situations often occur when the vendor doesn’t need a new place to live. For example:
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