Reservation Agreements Update – Will They Become Law?
The proposed implementation of Reservation Agreements has been high on the Government’s agenda in a bid to reduce the risk of fall throughs across England and Wales.
According to Rightmove data, one in three property deals in the UK falls through between offer and exchange. The introduction of a legally binding agreement after acceptance of an offer will end the risk of a transaction collapsing and put an end to gazumping and gazundering.
In the summer, the Government stated they would be completing a thorough 10-month research and trial into reservation agreements to see whether it would secure the home buying and selling process.
Last month, they launched the second stage of their research into reservation agreements with a trial likely to happen over the next few months. It has since been confirmed that a trial of the proposed reservation agreements could take place in early 2020 with a view to be introduced next year.
The latest research published by the leading home move platform, Reallymoving.com, reveals 67% of buyers and sellers support reservation agreements being introduced, which would require both sides to place a cash deposit when a sale is agreed.
Despite reservation agreements being popular with consumers, Reallymoving.com CEO has questioned the government’s plans to reduce fall throughs by introducing reservation agreements and believes the agreements would be hard to enforce unless clear guidelines were set out concerning how people can legitimately pull out.
The research also highlighted the main reasons why sales fall through prior to exchange including people changing their minds (29%), survey problems (17%), difficulties getting a mortgage (15%) and issues up or down the chain (11%).
Consequently, Reallymoving.com’s research indicates that gazundering and gazumping are not the main reasons why sales fall through – as only 8% of transactions had been gazundered while only 7% had been gazumped.
Rob Houghton, CEO of Reallymoving.com said, “The system for buying and selling property in England and Wales is fundamentally unfair, requiring both buyers and sellers to commit considerable sums of money to a process in which they are entirely unprotected. People are also forced to make life-changing decisions about moving to a new area, perhaps changing jobs, children’s schools and so on, while at any moment the other side can pull out of the deal without consequence.
He added: “To save the millions of pounds wasted through collapsed deals every year and to foster renewed trust between buyers and sellers, change is urgently required. Reservation Agreements, which would require both sides to part with a lump sum of cash at the point an offer is agreed, would undoubtedly prompt people to think hard about their commitment to the process, which can only be a good thing. The devil will be in the detail however and there will need to be clear guidelines outlining what exactly constitutes a genuine reason for withdrawing from a sale.”
A Ministry of Housing, Communities & Local Government (MHCLG) representative said that the trial in the New Year will take place in two regions of the country but these have not yet been selected. Furthermore, those conveyancers and agents who will be involved in the pilot have not yet been selected either.
Matt Prior, who has led home buying and selling work at the MHCLG Government for the last two years has suggested that different types of agreements could be trialled, including deposits of £500, £1,000 or no deposits.
However, Gary Barker, chief executive of Proptech giant Reapit thinks reservation agreements may need larger financial deposits than what MHCLG are suggesting – as he revealed in an article in Forbes magazine that he had been a victim after losing £25,000.
Gary Barker says, “While in theory a reservation agreement would act to prevent gazumping, in practice it’s unlikely to have much effect if the deterrent isn’t significant on the seller. Losing a reservation agreement deposit or being charged a small fine of say £500 to £1,000 would be a small price to pay if it meant the seller could still accept a higher offer that’s worth thousands more”
Barker also said that the Government needs to make clear the exceptional circumstances, where either party could withdraw through a valid reason such as a bereavement or job loss.
He adds: “What might be needed is either a heftier financial penalty, such as where the gazumping party pays the full fees forfeited by the offended party, or a more complex and drawn out withdrawal process brought about by the signing of legally binding procedures far earlier on in the process. Or both.”
In the meantime, a property technology firm, Gazeal has announced its collaboration with Mortgage Advice Bureau (MAB).
Gazeal is a new system for property sales that speeds up the offer to exchange process, reducing the transaction time to just a few weeks.
The reservation agreements provider aims to stop sales falling through by binding both parties into a transaction following an acceptance offer – so neither side can walk away from a deal, ensuring security and peace of mind for buyer and seller.
Bryan Mansell, of Gazeal, said: “Mortgage Advice Bureau was an obvious choice to partner with as they share our vision to make buying and selling a property more transparent, secure and easier. They are also clear market leaders in their sector and work closely, as we do, with estate agents all over the UK.”
Mansell added: “We feel strongly that the customer gets key advice throughout the process, thus enabling them to make decisions with more information available.
“We provide the property information, we also provide information on our conveyancing partners and now with our partnership with Mortgage Advice Bureau, mortgages.
“Understanding the availability of the right mortgage is so often left to the last minute and we fully support the need to explore this much earlier in the buying process, ideally before potential homes are viewed and definitely before an offer is submitted.”
He further added: “Gazeal’s digitally produced legal pack including searches is delivered to the buyer’s conveyancer on behalf of the seller at the very same day they agree the deal.
“This legal pack, alongside a mortgage decision in principle, and our reservation agreement, significantly improve the certainty of the deal and dramatically cuts down the time it takes for people to move into their dream home, which is what everybody wants.”
Peter Brodnicki, MAB chief executive said: “Technology is helping both Gazeal and MAB to increase the speed, ease, and convenience of buying and selling a home.
“Anything which brings a level of certainty to the home moving process can only be a good thing – getting an upfront commitment from the buyer and seller gives comfort to both parties.”
Brodnicki added: “Engaging with a mortgage adviser as early in the home buying process as possible makes complete sense. We really welcome the process and platform Gazeal have introduced as it brings the mortgage to the beginning of the negotiations.”
However, Tim Higham, Head of Property at Trethowans disagrees with the implementation of reservation agreements. He said: “They might help estate agents weed out insincere buyers/time wasters – but that situation has only increased because too many estate agents have abandoned thorough vetting being so desperate to just secure commission with so much competition out in the market place.
“Reservation agreements are a complete red herring, just more money the public will have to pay for the use of them, when home moving is already costly.
“Instead, the Government should regulate and ban any offer for a property without a mortgage in principle, a named conveyancer on board, names of all parties (and their conveyancers in the chain made know to the whole chain) and a commitment to a targeted timescale.
“In some quarters I have heard that reservation agreements will speed up conveyancing, but that is a nonsense. They do not address the issue with
“why conveyancing takes so long, which is a whole different list:
- Poor legal training (in fact zero regulation prevents a legal office cleaner being badged as a conveyancer and set to work)
- Law firms who take any CV, rather than the best for their clients
- Referral fees generating greed rather than a desire to offer quality.”
Whatever the outcome from the Governments’ research and trial, it is clear that a system is desperately needed to prevent a gluttony of fall throughs, gazumping and gazundering – which causes pointless financial loss to consumers and will ultimately bring back confidence and trust in the transactional process.