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Reservation agreements get a buyer’s skin in the game – Osmond

by: Chris Osmond, sales director, Johns & Co
  • 09/12/2019
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Reservation agreements get a buyer’s skin in the game – Osmond
Reservation Agreements (RAs) have been making waves of late.

 

The government is working on proposals to introduce RAs and has announced a trial.

The idea is, if a home buyer or seller pulls out of the transaction without good reason they would have to pay compensation, or lose a deposit.

It will begin in the first quarter of the new year across two regions in the UK, which are still to be announced. Meanwhile earlier this year, property expert Phil Spencer’s MoveIQ business partnered with Gazeal, which offers an RA service.

For us, RAs are already part and parcel of our daily service. We’re one of a small number of estate agency businesses using RAs as standard. We can therefore vouch first-hand as to how effective they can be in the sales process.

Johns & Co was set up in 2013 as a new-build specialist letting and property management business. When we began to offer a complimentary sales service shortly afterwards, it was a natural step for us to follow the commonplace approach of developers in using RAs for new-build purchases. While RAs are not legally enforceable at the moment, our experience tells us that serious buyers are happy to comply and our fall-through rates are amongst the lowest in the industry. The average sits at about 30 per cent, whereas our fall-through rates are more like 20 per cent this year. In one development, we had a record-breaking year for sales, with zero fall-throughs.

Fall-throughs are a blight for all involved. They result in an aborted sale, which is, of course, disappointing, and they cost money for the buyer and seller. We estimate the average cost of a fall-through is £2,000 and higher for leasehold properties where there’s more paperwork and therefore higher charges.

Our experience shows us that RAs can speed up the transaction process, too. Working with a serious buyer with skin in the game makes a noticeable difference. Our average transaction time is nine weeks from sale to exchange — all the more impressive because all the properties we deal with are leasehold, which typically take 50 per cent longer than a freehold sale.

All this being said, and while RAs are not a golden ticket to a guaranteed sale, they most certainly contribute to a smoother and more transparent sale than deals done without them. For that reason, we are wholly supportive of the government’s trial and we hope to see RAs become more commonplace in the market, building trust and confidence in our industry.

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