When is a purchaser really a ‘cash buyer’?

When, says Christopher Hamer, The Property Ombudsman, can a prospective purchaser be described as a cash buyer?

ombudsmanA frequent complaint referred to my Office is that an agent has failed to advise a seller of a prospective buyer’s precise financial position when an offer has been made on their property. The complaint arises typically because the seller accepts the offer having been informed that the prospective buyer is a cash buyer and hence will be eager to proceed quickly. It subsequently transpires that this is not the case, the prospective buyer being dependent on a sale or having to raise finance, and the sale takes longer than expected. In common with the majority of disputes referred to my Office, miscommunication and misunderstanding is the cause of dissatisfaction.ombudsman

“A cash buyer can only be described as such if he has realisable cash assets.”

Under Section 8 of the TPO Code of Practice, an agent has an obligation to take reasonable steps to find out from the prospective buyer the source and availability of his funding of the purchase and to pass this information to the seller. The Code does not impose a duty to carry out a full financial assessment at the point that interest is expressed or when an offer is initially made on a property. However, agents should take reasonable steps to ascertain the source and availability of funds and ask, for example, the buyer whether or not there is a property to sell and whether or not a mortgage is required. I believe it is acceptable for agents to rely on information provided by the prospective buyer and then pass this information on to their seller client in good faith, although agents must ensure that they have been diligent in following up anything that gives them reason to doubt what they have been presented with.

Particular care must be taken when describing a prospective buyer as a ‘cash buyer’.

I would only expect a cash buyer to be described as such if he has realisable cash assets; that there will be sufficient funds available by the proposed exchange of contracts and completion dates, or the prospective buyer has actually sold a property, that is, contracts have been exchanged, and completion will occur before exchange of contracts on the anticipated purchase and no mortgage is required to make up any difference in the purchase price. Where contracts have not been exchanged, the prospective buyer should not be described a cash buyer, that status being dependent on that prospective buyer’s sale. If applying the description ‘cash buyer’, best practice requires that the agent should ask to see proof of such cash assets to verify the position before advising the seller accordingly (if in any doubt, Paragraph 17b of the TPO Code of Practice provides a definition of a cash buyer). The agent should also continue to monitor the prospective buyer’s progress in obtaining funds where that is necessary to complete the purchase.

I did not support a recent case where the seller complainant alleged that the agent failed to ascertain that the prospective buyer could fund the proposed purchase. The prospective buyer explained that the majority of the monies were coming from a sale but they would need a small mortgage of £25,000. However, he was subsequently unable to obtain a mortgage and he withdrew from the transaction.

I was satisfied that the agent was able to demonstrate that, at the time of the offer, they had made reasonable enquires to ascertain that the prospective buyer could afford the property by way of a proposed sale (which was to form the vast majority of the purchase) and confirmation from an independent mortgage adviser of the prospective buyer’s ability to raise the remaining proportion of the purchase price by way of a mortgage. I was satisfied also that the complainant became aware of these arrangements during an early stage of the proposed sale and was content to proceed.

In a second case, the seller complainant alleged that the agent failed to financially qualify the prospective buyers at the point of offer and that when she raised her concerns, they failed to act. The complainant stated that having received the confirmation of offer letter, she recognised the prospective buyers’ names as having previously made an offer on the property through another agent and had been unable to raise sufficient funds to proceed at that time. There was no mention within the offer letter of the financial position of the prospective buyers. The seller explained that she advised the agent regarding her concerns. Whilst I did not know when the previous offer was made or whether the financial situation of the prospective buyers had subsequently changed, if an agent had been put ‘on notice’ by a seller that the prospective buyers may have financial difficulties, I would have expected them to make further enquiries into the prospective buyers’  financial position, record that they had done so, and update their seller client to that effect.

In this case, I accepted that the agent had contacted the prospective buyers’ solicitor to discuss these concerns, and been told that a deposit had been received and that they were awaiting confirmation that mortgage funds had been agreed prior to completion. Bearing in mind the concerns that had already been raised by the complainant to the agent, I would have expected that the agent could have demonstrated that they promptly communicated with the seller after this conversation. There was no record that this information was passed to the seller or that any further investigation was carried out by the agent. The prospective buyers then withdrew from the sale when they could not raise the finance.

I was not persuaded that the agent had demonstrated they communicated effectively and properly with the complainant about the prospective buyers’ financial position after the offer was made or that they responded satisfactorily to the seller’s concerns or kept her updated regarding the prospective buyer’s financial status. I made an award of £100.

In the last case, the agent said that the buyer told them that she was a “cash, non-dependent buyer.” They were told that the funds for the purchase came from an inheritance and, due to the buyer’s recent bereavement, they accepted her word regarding the source and availability of funds for the purchase (although they set about making independent enquiries with her solicitor to confirm this). They said they left several telephone messages for the buyer’s solicitor who failed to respond for some time and when he did, it was established that the buyer intended to tie in a related sale. The agent advised the seller complainant of this and she chose to continue with the sale. However, the seller later claimed that the agent had not financially qualified the buyer.

I accepted that at the offer stage the agent was entitled to rely on the buyer’s word that she would be paying cash and was not dependent on the sale of a property. However, the agent was obliged to make further enquiries after acceptance of the offer and whilst they had left several messages for the buyer’s solicitor to call them back to confirm the buyer’s status (which were not returned), I believed they should have pursued other avenues to ensure that contact was made and the status was confirmed, but there was no evidence that they did so. The sale completed but I considered that the seller would have experienced a degree of aggravation, distress and inconvenience due to the shortcomings in monitoring the buyer’s progress and I supported this complaint to that extent, making an award of £300 for this and a number of complaint handling errors.

Misrepresenting the details of an offer to the seller through not communicating precisely that the offer is conditional on the prospective buyer obtaining finance could be classed as a misleading action under the Consumer Protection from Unfair Trading Regulations 2008; although, in the event of such a claim, that would be a matter for Trading Standards to determine.

If such a complaint was referred to me I would expect to see accurate information being communicated to the seller, appropriate questions being asked if the agent was unsure about the veracity of the information presented and regular monitoring of the prospective buyer’s status. With those steps being taken an agent could be confident that they had properly taken into account the principles of the Consumer Protection from Unfair Trading Regulations 2008 and I would be unlikely to uphold a complaint that the seller had not been made fully aware of the financial standing of the prospective buyer.

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