As the estate agency business in England moves towards being more robust, with professional qualifications and greater transparency, there are calls for compulsory reservation agreements to be introduced as part of the buying process.
The government proposes the introduction of reservation agreements as a method of reducing the number of failed property transactions within the UK market. According to recent figures it is reported that between 25-30% of all property transactions in the UK fail, causing undue stress and financial loss to those involved. So are reservation agreements the way to reduce failed transactions or yet another obstacle to homebuyers?
Reservation agreements are contracts between buyers and sellers, entered into at the point that an offer on a property is accepted. The Homeowners Alliance has proposed that as part of the reservation agreement each party deposits £1,000 with their conveyancer. If the transaction proceeds to completion this sum will be refunded or put towards costs, but if either party withdraws this sum is paid to the other as compensation.
The proposal echoes aspects of the successful Scottish system, and it is worth noting that such agreements are already commonly used during new build property transactions, as a reservation fee.
The primary aim of the reservation agreement is to increase commitment to the transaction, and to encourage both parties to be ‘transaction ready’ before they even enter into negotiations. Altering the mindset of the vendor and buyer will hopefully discourage the disingenuous, thus eliminating time wasters and reducing gazumping and gazundering. The prospect of losing a deposit would encourage vendors to collate the required information and buyers to ensure they have the required funds in place before making an offer. This should in theory result in a reduction in the time it takes to complete on a typical property purchase.
Despite its promise, there are some concerns as to whether this proposal will simply add another stage to an already lengthy process and become yet another obstacle to those already struggling to save for the required exchange deposit. The Homeowners Alliance has proposed that those who cannot afford to pay a £1,000 deposit can take out homebuyer/sellers insurance, however this is still at an additional cost.
