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Buying process set to get quicker, cheaper and more certain

Been burnt by the home buying and selling process? Haven’t we all. Well the government is getting closer to making changes to the system and it looks like our proposal for reservation agreements is on its way. Here’s the latest on the changes ahead…

February 1, 2019

reservation agreements

In October 2017 the government started a consultation to inform their programme of reforms to make the home buying and selling process much quicker, cheaper and more certain. Amongst other things, we recommended reservation agreements – a standardised and legally binding contract.

At the point of agreeing the price – but before either side spends any money – the home buyer and seller commit to being “genuine” to proceed with the transaction. They pay the other side £1,000 if they pull out, to pay towards their costs. See our campaign for an end to home selling chaos for more detail on how they work.

A routine part of our work here at HomeOwners Alliance is helping homeowners navigate through the home buying process and helping when things go wrong. And a lot can go wrong. We see reservation agreements as a way of making the system less precarious. They would remove the uncertainty caused by the fact home buyers and sellers enter into an agreement, and start spending thousands of pounds, with absolutely no legal obligation to proceed with the transaction. That can’t be right.

Our annual HomeOwner Survey 2018 polled by YouGov found that 65% of adults agreed. They supported the introduction of reservation agreements to commit both sides earlier in the process.

The system’s a nightmare, but is a reservation agreement really warranted?

We believe reservation agreements will reduce the number of home sales that fall through. According to our 2018 HomeOwner Survey, more than 300,000 property transactions collapse every year due to broken chains and buyers changing their mind.

Our research, polled by YouGov in 2018, has found that 51% of sellers lose an average £2,700 when a sale falls through with a further 12% reporting that they were out of pocket by more than £5,000.

The costs can include conveyancing bills, survey fees on an onward purchase and search costs.

We conducted a survey with IMMO.co.uk, the UK’s online homebuyer and YouGov which found that more than two thirds of home sales fell through because of buyer related reasons, including the buyer changing his mind/finding another property and the buyers finances not being in order.

We don’t think this should continue and see reservation agreements helping make the system more certain and less expensive over all.

The idea isn’t new. Our proposal takes the best of other systems, in particular Scotland and the Netherlands, to create a contract that protects buyers and sellers before they start spending money. We only have to look at the successful reservation system used by homebuilders, where buyers have to post a £1,000 deposit when putting their name down for a property to show they are genuine, to see that reservation agreements would succeed.

Reservation agreements would help to eliminate the problem of gazumping and gazundering from the buying and selling process.

When will reservation agreements be introduced?

According to Estate Agent Today, at a conference last week, the lead officer at the Ministry of Housing, Communities and Local Government confirmed they had a mock-up of a model reservation agreement and were now looking at the parameters, including how much money should be put down and what circumstances – such as bereavement or loss of a job – would allow a consumer to pull out of a reservation agreement without penalties.

There is also ongoing work to do with industry groups like estate agents and conveyancers to iron out any practical issues to ensure it really does deliver a simplified house buying process.

On timing, the junior housing minister Heather Wheeler last week said that it was important to reduce the number of housing transactions that failed and said,

“We want to increase people’s commitment by ensuring they get some skin in the game…there is no reason why this cannot become a standard practice,” Wheeler said. “I believe the appetite is there. The government will run a field trial later this year.”

Not everyone will be pleased by the latest news from Westminster though. TV property expert Kirsty Allsop has voiced her own concerns about reservation agreements. Back in 2017 she tweeted….

reservation agreement

What do you think? Leave a comment below…

 

 


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10 Comments

  1. I am all for reservation fees to make the buying/selling process more secure. I was a cash buyer who had 2 consecutive offers accepted on properties, spent loads on surveys and fees only for the sellers to change their mind, take their properties off the market only to put back onto the market a few months later at a higher price. In all I lost several thousands of pounds and wasted time without any means of address (excuse the pun).

    Comment by Janet Colyer — February 4, 2019 @ 8:38 pm

  2. I favour the German system, whereby buyer and seller legally commit to the sale in the presence of a notary. It is a waterproof contract and the price and completion date is fixed at that meeting of both signatory parties. The notary (who is the buyer’s acting solicitor) then does all the official paperwork connected with the sale (Land Registry*, etc.) within an set period. A date for the payment is set and keys are exchanged (usually the same day). The seller has nothing to do and no legal costs! The estate agent costs are split between buyer and seller and paid post sale. Importantly the contract specifically includes clauses covering what is typically included in a surveyor’s report in the UK. A buyer’s survey is recommended but optional. A sale typically lasts six weeks but can be any mutually agreed date in the future. *The German Land Registry system is efficient and based at the local town hall, so all parties can depend on a set time frame. The “Ground Book” negates the need for the owner to hold deeds and includes all necessary title plans, records, etc. which are all keep at the Town Hall.
    In addition to the usual sale procedure, there is also a streamlined rent-to-buy contract, whereby the buyer commits to rent for a certain period (usually several years) with a final one-off payment to complete the transfer of property title. The seller basically becomes the bank.
    I agree with Ms. Alsopp! £1000 is nothing at today’s prices! It should be 10% of the price with no exceptions! Death or job-loss are unfortunate, but are insurable risks.

    Comment by Janet Kaiser — February 4, 2019 @ 12:05 pm

  3. At minimum estate agents should be discouraged from advising sellers to keep property on market when offer has been accepted. Buyers also should be discouraged from having a backup property. This just encourages the buy and sale process to fall through. I also agree that property details should include when built and extensions added, Metre square floor size and price/M2, and when last surveyed and type. I’m sure also most sellers won’t mind providing last survey results . This would stop a lot of sellers just testing the market.

    Comment by Lynn — February 4, 2019 @ 9:59 am

  4. There needs to be room for flexibility for both the buyer and seller, and this system would at least give some compensation to either side if the other pulls out.

    Comment by Farah — February 3, 2019 @ 10:09 am

  5. Reservation agreements-brilliant idea. How did it take so long?
    Scotland has had the home buying market sorted for decades.
    Can’t wait for this to come to fruition!

    Comment by Elaine MacKenzie — February 3, 2019 @ 7:58 am

  6. I think the idea of a reservation bond has merit. Bona fide exemptions, such as withdrawal from a transaction due to bereavement or Loss of employment should be written in, as proposed.
    I should also like to see a reasonable time limit be set on the interval between agreeing the sale and exchange of contracts being set, e. g. 60 or 90 days, upon expiry of which the ‘wronged’ party might withdraw without penalty. This might focus the mind of buyers, sellers and conveyancers to speed the process up.

    Comment by Sean Roberton — February 1, 2019 @ 3:55 pm

  7. 100% agree with this ! I have just lost not one but two buyers ! The problem is some buyers are so keen to ‘secure’ your house because there is lots of interest but then they keep on shopping .. I’ve run up two survey fees and legal costs
    If you have to commit a financial sum you will help to ensure buyers think about it seriously . Equally only committed sellers should market their property

    Comment by Julie — February 1, 2019 @ 2:19 pm

  8. I moved to UK from Italy about 9 years ago. During the past year I’ve learned about the house buying process and I found it appalling.

    Sale ads offered very little details were provided on the advertisements: no square meters, sketched floorplans, property age, no leashold terms.
    Estate agents were offering no guarantee of correctness, thus facing no penalty if deceiving the buyer.

    Instead the buyer has to perform costly procedures to verify the sale is genuine and the house is in good condition with no guarantee of the property still being available till the last minute.

    It seemed an unacceptable market, skewed towards the interests of estate agents, sellers, converyors and solicitors.

    Hard to accept there was so little regulation around what’s the biggest purchase for most of people and a fundamental need for a decent living.

    I’m very happy to hear the governmant is changing.
    The Scottish model seems way more reassuring and fair to my eyes and, like they do, I’d want the seller to be responsible of providing a house survey and a realistic floorplan.

    Comment by Alessandro Mecca — February 1, 2019 @ 1:47 pm

  9. We have had two buyers pull out of the same sale of our flat within 6 months through medical reasons although no proof was ever obtained and we are heartily sick of the whole selling process. We have lost the bungalow we had our hearts set on into the bargain. I think 10% deposit should be asked for as a withdrawal has cost us hundreds of pounds and we are no further forward than when we started seven months ago.

    Comment by Peter — February 1, 2019 @ 1:25 pm

  10. As someone who has lost their buyer twice I welcome something that at least tries to stop people pulling out of the deal,however I like the Scottish way of buying and selling homes.

    Comment by Tony V — February 1, 2019 @ 1:13 pm

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