Originally Posted by Doobedoo

Memorandum of Understanding

It's a written agreement between two or more parties that, in this case, precedes the actual Sales & Purchase contract or contract proper. In essence, it's the glue that gets buyer and seller to a pont of agreement before the process of transferring the property at the developer. It is required because if I agree to buy a property from you and we are able to secure a meeting 6 weeks from now at the developer, what's to stop you taking a higher offer or me just walking away before that meeting.

On the signing of the MOU, monies often change hands to 'secure' the deal and if there is default on either side penalties are normally due, for e.g. if the buyer who may have paid a 10% deposit defaults, the seller may the 10% and walk away. Typically it is more risky for the buyer - which is why one needs to have as much security as possible - I find this is best achieved by using a reputable agent who has 'brand equity' at stake if they do not consistently broker good deals - it's also a point of recourse, although certainly with no guarantees.

There is risk in this approach - that's why property can be bought, sold and bought again in a week. Trying to do something similar in the UK, US, Europe or most other more mature property markets would take many weeks due to highly developed conveyancing processes, typically with resultant greater costs. In other words there is a risk reward continuum which you need to bear in mind.