The Government are ramping up their efforts in helping to make the home buying and selling process more secure by completing a thorough 10-month research and trial into reservation agreements.
The idea of creating policies to reduce gazumping and gazundering by creating a financial bind during the pre-completion stages of the buying and selling process has been something the Ministry of Housing, Communities and Local Government (MHCLG) have been long term advocates of.
Tasked with reducing the £270 million annual waste absorbed in the estimated 33% housing purchase failure rate, the MHCLG are set to initiate the first stage of the research into reservation agreements this summer.
An initial three month consumer consultation gathering more in depth insight will be followed by a seven month trial period.
The research project follows behavioural insight findings on the home buying and selling process which indicated a deep mistrust between both sides of the home purchase and an overwhelming lack of confidence in the process of buying and selling a property.
Almost half of sellers (46%) and a third (33%) of buyers are concerned that the other party will change their mind at some point in the sales process.
Additionally, very few people are confident that the sale will make it to completion. 70% of buyers and 66% of sellers confident that something will scupper the sale.
Half of all buyers and 70% of sellers are currently willing to enter into a legal commitment, like a reservation agreement, after the acceptance of an offer.
The research will help to create a clear consumer sounding board by assessing whether a binding reservation agreement can help to reduce these fears and restore a more robust confidence in the home buying and selling process.
Despite gazumping impacting fewer than 1% of all residential property sales, 16% of buyers are worried by this issue that a reservation agreement, in their current iteration, may fail to fully address. If the financial gain exceeds the financial loss incurred by breaking the agreement, many have argued a buyer will continue to seek the higher price.
When influences outside the control of both buyer and seller, like being caught in a chain, can impact a home sale, it is feared that binding agreements could unfairly punish those concerned. The government are also looking at ways to ensure this circumstance is not overlooked when the project reaches a trial period.
The Government and leading experts have also discussed the importance of using a clear and consistent framework as fragmented and disjointed approaches could hinder the effectiveness of reservation agreements.
Even now, reservation agreements are gathering more traction in the current market. Just this week, property expert Phil Spencer alongside his advice website Move iQ have endorsed the binding reservation agreements proptech provider Gazeal can supply after an offer is agreed.
Phil Spencer, Property expert and TV personality, commented:
“Whatever the market conditions, the real culprit is the legal blind spot in the way homes are bought and sold in England and Wales. A legal system that allows buyers or sellers to abandon a sale a day before the exchange has always been a point of contention.
“That’s why Move iQ has teamed up with Gazeal, who offer a legally enforceable contract at the very start of the process. Allowing sellers and buyers to agree a deal that has legal force right from the start; can spare weeks of uncertainty and prevent frustration and expense – all symptoms of gazumping and gazundering” he adds.
“Not only that but it’s also good for the traditional estate agent who can often be left with no fee despite committing huge amounts of time and effort on behalf of their client.”
Will reservation agreements help to reduce the high failure rate in home buying and selling? Will this system make the conveyancing process feel more secure?
