A contract race is where a seller agrees to exchange contracts with two or more potential buyers.
The seller usually makes this decision when there’s pressure to sell, or is at risk of losing the sale altogether.
But, this situation is still alien territory for many. The process of buying a house can be a difficult one!
So, here’s a closer look at what’s involved, what it all means, and what to do if you find yourself in these circumstances.
What is a contract race?
In short: a contract race essentially puts buyers in a position where they have to compete with each other. If two or more potential buyers put in a similar offer, the seller might use this method to secure the sale.
Here, multiple contract packs will be submitted.
Whichever buyer is in the position to proceed first secures the deal – hence the ‘race’. It’s a way for the seller to speed up the time it takes to exchange and get to completion day.
What are the legal implications?
This is entirely legal. Only after completion day does the sale become legally binding. The seller is not obliged to exchange contracts with the first person who says they’re able to do so.
But, unsurprisingly, many prospective buyers pull out if they find themselves in this situation.
If a seller uses a solicitor, this cannot be the same as the one used by the buyer, as this can be deemed a ‘conflict of interests’.
The seller’s solicitor is also required to inform all buyers of the situation and that they’ve been entered in a race. Once contracts have been exchanged, all other parties must be informed. Each must be treated fairly, for example, all contract packs should be sent on the same day.
Also, if a seller changes their mind about the sale, or chooses a new buyer, all contracts from those in the race must be withdrawn. This must take place before any other action proceeds.
So, while it’s unlikely there will be any legal repercussions, it’s important to be aware there are some rules in place. To a certain extent, these do protect the buyer. However, these don’t state that hopeful buyers should be reimbursed for any money they have spent.
Why do house contract races occur?
There are a number of reasons why a seller may ask their solicitor to enter them in a contract race.
• If a potential buyer is in a property chain
• If a buyer is dragging their heels
• If they’re under pressure to complete their sale before they can buy a new home
• If the property has attracted a lot of interest
• If they’re worried they might lose the sale completely
• If hopeful buyers offer the same amount in a sealed bid scenario
Despite the reasons behind it, it’s easy to see why many buyers don’t relish the prospect of having to ‘race’ to the finish line. It sits alongside gazumping as one of the pariahs of the property buying process in the UK.
Advantages of a property contract race
Truthfully, most of the pros sit with the seller – as they’re usually guaranteed a sale. It also reduces the risk of gazundering, which is where buyers lower their offer at the last minute.
The more buyers in the mix, the more your chances of winning the race and getting your hands on your new home are reduced.
But, if you’re the most organised and prepared buyer, you give yourself a better chance of being successful. Of course – bear in mind that there are no guarantees, however it’s something to think about.
Disadvantages of a property contract race
The main disadvantage of this situation is that hopeful buyers can be left disappointed.
But, there are others, including:
• Buyers can be put under pressure, forcing them to rush into a sale they haven’t fully thought through
• You might end up paying more than you wanted to, or had initially budgeted for
• If you don’t win then you lose your money spent on conveyancing fees and other costs, such as surveys
How to avoid a house contract race
If you feel the disadvantages far outweigh any positives, there are some ways you can avoid a contract race completely.
The main drive for the seller is securing the sale. So, do everything in your power to be a reliable buyer.
• Prove you’re organised by having all the necessary funds in place
• Have a solicitor instructed, on standby and ready to proceed – share their details with the seller
• Be open and communicative – always respond quickly to questions – don’t hold back any information
• Show interest in the property – have a trusted surveyor on standby, ask plenty of questions, convey that this is your dream home (if it is)
• Try and build up a rapport with the seller – a good relationship should help things go in your favour
• Understand the property market as much as possible. The more informed you are, the better your chances of the seller understanding you’re serious about the sale
• If you’re a first-time buyer, use this to your advantage by emphasising that you’re in a chain free position
• Within reason, offer a level of flexibility. If the seller feels pushed and overly-controlled, it might make them more likely to stray to other buyers
• Further convey your commitment to this purchase by being decisive
How to win a property contract race
With these circumstances, there’s no guarantee of winning, as you simply don’t know the situation of others in the race.
However, it would certainly help to engage a solicitor who is familiar with and has won a contract race before. They will be able to instruct and guide you through what may be a tense time!
Also, it’s advisable to already have a mortgage agreed in principle from a dependable and reliable mortgage lender. This can help get things in motion much quicker, proving to the seller you’re financially committed to buying their house.
Consider your options – is this what you want?
If you find yourself in a potential contract race, it’s essential you think carefully about whether this property is really what you want.
Consider all aspects of the current circumstances. If this is your dream home, do you feel committed, with everything you need to win in place?
Remember, you could still end up spending a lot of money and there’s always the risk that you lose out at the end of it all. But, if you do have your heart set on a property, you might just feel you have to try .
There’s no way to predict the outcome of a contract race – it really is a leap of faith. If you’re in this situation and also have a property chain, think really hard about the additional pressure and complications this could cause.
Whether you find yourself in a property race or not, you need to ensure this is the home for you. Look beyond the physical attributes and focus on the area itself. Remember, having the best house on the worst street can cause its own problems. The best way to find out about the area is with a property report. This can tell you everything from information on local schools to crime rates. Get your full report here.