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Fraudulent New-Build Price Setting

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[First post]

This is anecdotal but hopefully of interest.

An ex-colleague/friend bought a new-build flat in London around five years ago. He recently shared an intriguing detail regarding the sale with me.

Before the purchase, he told the developer that he and his wife liked the flat, but the price was too high for them. The developer proposed a scheme whereby the difference between the asking price and my friend's offer would be paid by the development company to itself. I'm not sure of the exact mechanics of the transaction, but the desired effect was clearly that the sale would go through at the official asking price, even though my friend in fact paid less than that. Presumably, they were worried that a single sale at a reduced price would significantly reduce the valuation of the entire project. I'm not a lawyer, but presumably this counts as fraud.

This all happened a long time ago and I have no idea if the practice is widespread. But given the vast numbers of London new-builds, it wouldn't be much of a surprise. Would be interesting to know if anyone else has heard of similar schemes.

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It's common practice, and underhand for sure but not fraud.

When selling a load of largely identical properties a developer wants them to appear to be sold for the same price, but different buyers want different deals. Some push harder than others, some expect more thrown in. So you get "deposit assistance" where the developer pays towards the purchase price, or "we'll pay your stamp duty" which amounts to the same thing, or fixtures, fittings, soft furnishings, garden landscaping etc included or upgraded for no extra cost. But the sale price is always at pretty much the same price.

As ever, buyer beware.

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[First post]

This is anecdotal but hopefully of interest.

An ex-colleague/friend bought a new-build flat in London around five years ago. He recently shared an intriguing detail regarding the sale with me.

Before the purchase, he told the developer that he and his wife liked the flat, but the price was too high for them. The developer proposed a scheme whereby the difference between the asking price and my friend's offer would be paid by the development company to itself. I'm not sure of the exact mechanics of the transaction, but the desired effect was clearly that the sale would go through at the official asking price, even though my friend in fact paid less than that. Presumably, they were worried that a single sale at a reduced price would significantly reduce the valuation of the entire project. I'm not a lawyer, but presumably this counts as fraud.

This all happened a long time ago and I have no idea if the practice is widespread. But given the vast numbers of London new-builds, it wouldn't be much of a surprise. Would be interesting to know if anyone else has heard of similar schemes.

Same thing happened to a friend of mine recently buying a sh*ty new build. ( not in london )

I told her to go to the police.

The housing market is rotten to the core.

Join in at your peril

Edited by TheCountOfNowhere

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It's common practice, and underhand for sure but not fraud.

Are you sure about that? Sure, there are a lot of grey areas, including the stuff you mentioned ("deposit paid", "new car" etc etc), but I would have thought actually paying the difference (in secret, presumably) and recording this as the sale price could have a material effect on a number of things - e.g. the developer's financing, the price others' pay etc.

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There's a tax implication as well as it's a form of gift. Assuming it's not just some sort of shared ownership contract - as well as the implications on Stamp Duty etc - possible charging more than strictly liable - and all the other price related fees.

Then there's possible false reporting to the Land Registry.

Apart from anything else it seems to be a fraud on any shareholders/share buyers reporting a falsely buoyant market.

And of course fraud on future buyers in the market after the recorded price is set at a false level - particularly for FtBers.

Years ago stuff like that was called slush funding.

Edited by billybong

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Are you sure about that? Sure, there are a lot of grey areas, including the stuff you mentioned ("deposit paid", "new car" etc etc), but I would have thought actually paying the difference (in secret, presumably) and recording this as the sale price could have a material effect on a number of things - e.g. the developer's financing, the price others' pay etc.

Probably the most common dodgy practice is over paying for a trade in - colleague recently offered a trade in deal at full kite flying price for his existing house. This is despite 3 months on the market with no offers and little interest.

Killed two birds with one stone, old house sale goes through at probably £60K over its true value and new build goes through at full asking price - great for comparables all round.

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The lenders were not happy when they found out because it affected their asset securtiy.

Exactly - that's a whole other angle and quite clearly fraud. If I "gift" you a 20% deposit, your 80% mortgage is actually a 100% mortgage..

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Presumably that sort of deal as described by the OP can't be done across the board - just a percentage of the deals. Otherwise it would be clear in the profit statement. Depending on the size of the discount - small discounts could be offset under things like marketing etc, one assumes.

So presumably there's a tendency to offer it to favoured customers that just maybe happen along or maybe those that just have the good fortune to happen along and buy at the right time.

5 years ago was 2011 and prices were still declining in real terms so they would be desperate to record falsely high sales prices and to try to sucker people in as a consequence of an apparently stronger market than it was in reality.

Edited by billybong

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Presumably that sort of deal can't be done across the board - just a percentage of the deals. Otherwise it would be clear in the profit statement. Depending on the size of the discount - small discounts could be offset under things like marketing etc, one assumes.

So presumably there's a tendency to offer it to favoured customers that just maybe happen along or maybe those that just have the good fortune to happen along and buy at the right time.

I don't know if the figures are publically available, but from talking to people who are interested in new-builds trade in deals are pretty common and the excess paid over the true value can be very large.

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I don't know if the figures are publically available, but from talking to people who are interested in new-builds trade in deals are pretty common and the excess paid over the true value can be very large.

I believe that could be true - though I was referring to the OP's deal with just an unreported discount and no exchange/trade in of property.

I've amended my post to clarify that.

I imagine accounting for excess over true value trade in deals is easier than false reporting of the actual sale price.- depending on the size of the discount and how many of them are involved. For example £1000 might just be put down to petty cash expenses etc. Quite nice but very small in the general scheme of things.

Edited by billybong

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Thanks all -- interesting stuff. I've actually considered posing as a buyer to see what sort of dodgy deals are offered, purely out of curiosity. Sadly I doubt the police would be particularly interested.

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In 2012 I bought a brand new van.

The on the road price was over £23,000

I paid £13,500

The £9,500 difference was made up of £5,000 'dealer support' from the manufacturer and £4,500 support from the main dealer

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Wasnt this banned post 2007 collapse ?

I think, from memory, the blatant here's your £30k bung was banned, or rather had to be taken into account when declaring the sale price but trade in deals are very common and don't have to be reflected in the price declared to the land registry

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Like the car market, fraudulently inflating the sale price is evident when the property is resold to the second owner.

Unlike cars where we can get a sweet deal on nearly used one second owner property won't appear to have that fiscal advantage in a rising market. The increased asking prices will hide this. However, as we saw a few years ago when the market slowed, the fraud in obvious.

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Presumably that sort of deal as described by the OP can't be done across the board - just a percentage of the deals. Otherwise it would be clear in the profit statement. Depending on the size of the discount - small discounts could be offset under things like marketing etc, one assumes.

So presumably there's a tendency to offer it to favoured customers that just maybe happen along or maybe those that just have the good fortune to happen along and buy at the right time.

5 years ago was 2011 and prices were still declining in real terms so they would be desperate to record falsely high sales prices and to try to sucker people in as a consequence of an apparently stronger market than it was in reality.

Actually, it can be done across the board (just not for years and years). The revenue is recorded at full sales price and the "goodwill" is amortized over a number of years.

I am **REALLY** surprised by learning this!! What % are we talking here - something small or something that could impact the housing market like 30%. I don't know what protections are in place for housing transactions but this would most definitely be unlawful with any kind of financial transaction (such as on the stock exchange). Special provisions are made for bulk trades which might but the market out of kilter - a block trade at previous day's close might be reported after trading hours, for example. But it IS reported and a legal obligation for members of the exchange to do so. I can see all sorts of ramifications (such as money laundering) arising from this practice and I think that the FCA would be very interested to hear about incidents of it.

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If most FTB-ers were buying new homes in which the sold price were being artificially inflated like this AND most other house sales are in chains of OOs (trade-ins effectively), that would explain how none of the house price indexes seem to bear any resemblance to what people can afford.

Maybe the strength of HtB in inflating house prices is that it has deliberately pushed FTB-ers to new homes, removing the awkward problem of having to write down the amount of money they can actually borrow.

I was assuming the current house price bubble was based on the same frauds as the first e.g. self-cert...maybe it doesn't have to be...

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Isn't this creating a false market and therefore illegal? It is bit like the Guinness scandal.

The whole market is rotten.

All those new build prices, if this is common practise are not real.

The case i know, they basically took a trade in, fiddle the figures and sold the trade in 50K less than declared price.

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The whole market is rotten.

All those new build prices, if this is common practise are not real.

The case i know, they basically took a trade in, fiddle the figures and sold the trade in 50K less than declared price.

As you would expect it only happens when the market has stalled so common might be overdoing it.

Also in the case I know of (Barratt), they limited the loss by refurbishing it pretty much showroom standard before remarketing.

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It's common practice, and underhand for sure but not fraud.

When selling a load of largely identical properties a developer wants them to appear to be sold for the same price, but different buyers want different deals. Some push harder than others, some expect more thrown in. So you get "deposit assistance" where the developer pays towards the purchase price, or "we'll pay your stamp duty" which amounts to the same thing, or fixtures, fittings, soft furnishings, garden landscaping etc included or upgraded for no extra cost. But the sale price is always at pretty much the same price.

As ever, buyer beware.

...this is fraud...it means the land registry information is not correct , it corrupts Government data, misleads valuations.....etc ..etc...time the authorities recognised fraud ...or they become part of it....easy for investigators to pull in a crowd instead of a few for involvement...ignorance is no excuse in the face of the law in such cases.... :rolleyes:

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