With the proposed implementation of Reservation Agreements being high on the Government’s agenda in a bid to reduce the risk of fall throughs across England and Wales, Managing Director and founder of Gazeal, Duncan Samuel, talks to Today’s Conveyancer about whether locking buyers and sellers in a legal binding agreement will help the homebuying sector; how Gazeal’s new system will benefit conveyancers; whether reservation deposit deals are enough to stop sales falling through; whether there are any mitigating circumstances, whereby either party can pull out of a reservation agreement without incurring a penalty; how can conveyancers get on the Gazeal panel and his views on the future of the property industry over the next few years.
What challenges are conveyancers facing in the industry?
Conveyancers face a number of challenges:
- regulation
- professional indemnity insurance premiums
- low conveyancing fees
- reliance on other organisations affecting service delivery (e.g. local authority searches)
- money laundering, fraud, and cyber crime
- ever-increasing lender requirements
- the need for investment in IT that may or may not generate a return
Gazeal cannot resolve them all. We have focussed on a key area which affects the client’s experience of conveyancing – namely, the uncertainty for seller and buyer between offer and exchange.
We aim to eliminate the uncertainty in a way that is consistent with client expectations of a professional service in the 21st Century.
The statistics are stark:
- the UK ranks 9th globally for ease of doing business, but 42nd when it comes to buying a property*
- between a quarter and a third of all property transactions that are agreed fail to exchange**
- consumers lose over a quarter of a billion pounds per annum in wasted fees and costs due to abortive transactions***
Gazeal has not produced these statistics. To deny that there is a problem is idle. This must be addressed.
* World Bank’s Ease of Doing Business Report 2019
** Propertymark NAEA
*** HM Treasury
How will locking buyers and sellers into a legally binding agreement, such as reservation agreements, help the home buying sector?
Reservation Agreements alone will achieve very little – no-one wants to commit without knowing what they are committing to.
The key is for the buyer and his conveyancer to see all of the relevant information about the property BEFORE he is asked to commit. If buyers and sellers know that they are committing subject only to mortgage finance and good title, the fall through rate will be slashed, and the efficiency of the property market greatly improved, which will be to the benefit of all.
Tell us about Gazeal, how does your new system transform the property industry?
Gazeal produces the entire contract pack when the property is listed for sale with the agent. This is at no cost to the seller or to the agent.
The pack includes: the contract, the registers of title (and any documents referred to), OC1, title plan, Property Information Form, Fittings and Contents Form, Leasehold Information Form, Local Search, Con29 DW, Con29M, Planning, Environmental and Drainage.
When the agent finds a buyer who is serious about making an offer, the contact pack is sent to the buyer.
The buyer can learn everything about the property and can ask his conveyancer to review the contract pack.
The buyer puts in his offer via Gazeal’s on line system.
If the seller accepts the offer, the parties can sign the Reservation Agreement – although they do not have to.
The effect of this is that the buyer is committing to buy the property, as represented, subject to:
(a) a small fee to allow Gazeal to guarantee a reservation deposit
(b) a cooling off period
(c) mortgage finance and
(d) good title
The real benefit of the Reservation Agreement is that it ensures transparency between the parties on key information – for example, if a buyer wants to withdraw because the lender has downvalued the property, unless he produces evidence of the down-valuation, he will be in default. He cannot just walk away with no consequence as is possible at the moment.
How does Gazeal’s new system affect/benefit conveyancers in their transaction process?
There are many benefits for conveyancers:
(1) Clients who are not anxious about the transaction falling through are able to appreciate the service that is provided and are less likely to complain about it, so customer satisfaction goes up.
(2) Agents sales progression calls stop because there is no risk that the deal falls out of bed for anything other than a good and unavoidable reason, enhancing fee-earner time.
(3) Gazeal produces the contract pack with the seller which the buyer’s conveyancer receives on day 1, so enquiries can be raised straight away – saving fee-earner time and speeding up the transaction – this will increase profitability and improve the client experience.
(4) Good and Marketable Title is defined within a title policy that Gazeal places on risk on completion (which is for the benefit of the buyer and the buyer’s lender) – so if anything goes wrong on the file, the firm just refers the client to the underwriter’s claims handler, without the need for the firm’s PI insurers to get involved. This will save the relationship with the client and reduce PI claims and, hopefully, PI premiums.
(5) A huge benefit to the buyer’s conveyancer is that the title policy mentioned above also insures against the buyer not having good title to the property, and so covers the Dreamvar / Friday Afternoon Fraud nightmare.
(6) Importantly, Gazeal does not take a referral fee, there is no fee to join our panel, no training fee, no annual fee – there is no extra cost for the conveyancer but a Gazeal transaction will hopefully improve profitability and reduce their liability resulting in happier clients.
(7) Gazeal is very popular with agents – they are always seeking conveyancers who are already using Gazeal, so this has the capacity to generate additional work for the conveyancer.
(8) Lastly, those conveyancers who are more forward looking are using Gazeal as a way of marketing their own practices to agents.
Will your reservation agreement deposit be enough of a deterrent to stop sales falling through? Do you think the penalty is enough?
We think that the way Gazeal deals with the reservation deposit is a game changer.
The government is suggesting that a reservation deposit is paid by the buyer – to give them some ‘skin in the game’. This means the buyer finding money up front, problems for conveyancers in relation to source of funds and source of wealth checks and a lack of clarity by the CLC and the SRA as to who might hold this deposit.
The Gazeal approach sweeps all of these problems away.
The Reservation Agreement provides for a reservation deposit of 1% of the sale price BUT we do not ask the buyer to pay it. Instead, the buyer pays a modest fee (a percentage of the price of the property) to buy a reservation deposit guarantee. This arrangement means that the buyer does not need to find 1% of the sale price upfront, but the seller has the comfort of knowing that there is a guarantee in place.
If the buyer defaults under the Reservation Agreement, Gazeal pays the full 1% reservation deposit to the seller and will pursue the buyer for this sum.
So, the reservation deposit guarantee means that the buyer will be liable for the 1% reservation deposit but will only have to pay out this sum if he defaults under the Reservation Agreement.
The buyer is also protected in that the seller does not have the right to withdraw during the Reservation Agreement – and if he does so, he will incur penalties (although Gazeal does not guarantee this liability to the buyer).
In the event of dispute, the parties can refer the matter to an arbitrator appointed under the Reservation Agreement, who is a High Court Judge and a QC. The process provided for in the Gazeal arbitration rules is electronic, fast and inexpensive.
A buyer may be tempted to withdraw if they have seen another property, or a seller may be tempted to accept a gazumping offer – in which case, the parties are at risk of being pursued for losses by the innocent party. Our experience is that the vast majority of buyer and sellers’ attitude to risk means that they do not breach the Reservation Agreement – we have not had one do so to date.
Are there any mitigating circumstances whereby either party can pull out of the binding reservation agreement without incurring a penalty?
The buyer can withdraw during the cooling-off period for any reason.
After the cooling off period, the buyer can only withdraw without penalty if the property is down valued by the lender, or if the buyer’s conveyancer is unable to certify that the title to the property is good and marketable. In both cases the buyer’s conveyancer must produce evidence if the buyer is to avoid forfeiting the deposit.
The seller can terminate reasonably if (a) the buyer’s conveyancer does not confirm that they have a mortgage offer within 14 days of the mortgage application, or (b) if the title is not certified as good and marketable by the buyer’s conveyancer with 7 days of the last set of replies to enquiries.
Once the buyer’s conveyancer confirms that they are holding a mortgage offer and the title is good and marketable, then the Reservation Agreement is unconditional and neither party can withdraw without penalty. At this point the parties agree to proceed to exchange.
All of these timescales can be varied by agreement between the conveyancers.
Your clients choose from a panel of solicitors, what happens if a conveyancers’ client is not using Gazeal?
Joining the Gazeal panel is a very quick and easy process and costs the conveyancer nothing. If the buyer’s conveyancer does not wish to do so, then we will make the contract pack available to the seller’s conveyancer for them to pass onto the buyer’s conveyancer in the normal way, so it still saves large amounts of time.
How can a conveyancer get on your panel?
Very easily – the purpose of the panel is to ensure that conveyancers have a working knowledge of the Reservation Agreement, not to limit the number of conveyancers using it – for this purpose there are a set of webinars that are hosted for us by our training partner, Bold Legal Group where they can learn more.
Before we release the documentation that underlies our service, for obvious reasons we do ask conveyancers to sign an NDA – conveyancers who are interested should email me at duncan.samuel@gazeal.co.uk and I will forward the NDA to them by DocuSign and will then make the Reservation Agreement and other relevant templates available to them.
If they are happy and wish to proceed they need to sign and return a licence and retainer with Gazeal (just to confirm that they will meet our services standards), give us details of the fees they propose to charge so we can add them to the online quotation system and let us have the names, emails and DDIs of the fee-earners who will work on Gazeal cases.
Looking to the future, how do you see the conveyancing/property industry changing over the next 5 years?
To date capital investing in “prop tech” has concentrated on the agency part of the deal. This is coming to an end as the brand dominance of Purple Bricks means that the cost of marketing for the smaller players and new businesses makes it uncommercial to compete.
Investors are now beginning to focus on other parts of the property buying process, including conveyancing.
This will be encouraged by government, who are determined to see change, but want to see it driven by the market rather than by regulation. Transaction critical information will become available much more quickly, settlement systems, both financial and land registry based, will evolve and intermingle. Taking full advantage of this will require investment, which law firms generally are not good at, for a variety of reasons.
To an extent, firms are protected as conveyancing is a reserved activity – so conveyancers perceive that the legal work will come to them anyway. However, as technology breaks down the various activities involved in conveyancing they are going to have to look carefully at their business models. If, as a firm, you do not want to make the capital investment in IT systems that some of the larger players have, then you should be looking at a business like Gazeal that allows you to strip out overheads while increasing customer service without any downward pressure on fees.
These developments are not a threat – as a property market, we remain one of the prime markets in the world. Greater market efficiency will ultimately drive greater volumes, and those firms that can take advantage of these changes will benefit.
