A roundtable event hosted by former Head of the Office of Fair Trading and President of the E-Homebuying Forum, Sir Bryan Carsberg, last week saw leading estate agents, solicitors and conveyancers debating on the introduction of preliminary contracts as a standard procedure in the home buying and selling process.
Many of the attendees were in favour of preliminary contracts, these would be legally binding and could change the way many properties in England are purchased, allowing a greater certainty within the buying and selling process at an earlier stage. The contract would ensure that withdrawal, for anything other than a genuine reason, would mean penalties.
Sir Bryan Carsberg said:
“Gazundering and gazumping can be avoided if the buyer and the seller reach a preliminary agreement and if one party refuses to enter such an agreement, the other is informed that there is no firm commitment. We believe a legally binding preliminary contract, requiring, for example, a 5-10% deposit would give a serious indication of the intent to purchase or sell a house, therefore helping to identify timewasters and speculative sellers from the market.
However, we recognise that any preliminary contract shouldn’t punish home buyers and sellers that pull out of sales for genuine reasons. For example if the property proved to be suffering from subsidence or the buyer couldn’t secure sufficient finance, the contract would become void.
There is still some way to go before the preliminary contract becomes a reality, but we recognise there are real benefits to introducing such a contract for consumers and industry alike. We will be working with industry members to develop a standard form of voluntary agreement in the coming months.”
Martin Reynolds, Director at Agent Tracker, commented:
"We welcome any progress this industry-led group is making towards introducing a legally binding pre-contract at the point of offer on a property, with a deposit being paid. This is the norm in the US, Scotland, Australia and much of Europe, and would significantly speed up the homebuying process in a way HIPs failed to do.
The fact is that considerable time and effort is spent progressing sales, a third of which never make it to completion. This is extremely frustrating for buyers, sellers and agents, who don’t receive a penny for all their work if the sale falls through, even though it is often for reasons outside their control.
The Government needs to embrace this industry initiative if it is to be a true success. If the signing of pre-contracts is not required by law, buyers making an offer on a property where the agent requires pre-contracts will need to have a deposit to hand, a mortgage agreed and be fully committed to the purchase, which might tempt them towards another property where the agent is not asking for pre-contracts."
It will be interesting to see how this ‘pans out’ but in the meantime what do you think — should this be standard procedure?
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