However, the Ministry of Housing, Communities and Local Government (MHCLG) is not planning to make the agreements mandatory at the moment, despite resistance from estate agents.
MHCLG confirmed it will be publishing research into the subject later in the year, while the Conveyancing Association is also working on a draft template standard agreement.
Beth Rudolf, director of delivery at the CA, told Mortgage Solutions: “The industry group, the Home Buying and Selling Group, set up to work with MHCLG is developing a process and industry accepted wording for reservation agreements.
“We are hoping to have everything in place for a pilot to be signed off in December to establish the reaction to reservation agreements and potential benefits and issues which they bring.”
Industry figures suggest between 25% and 33% of potential housing transactions collapse at present costing £270m per year and there are hopes reservation agreements will drastically cut these numbers.
Speaking at the Westminster Legal Policy Forum seminar, The future for the home buying process, Matt Prior from the Ministry of Housing, Communities and Local Government explained the agreements would show a commitment to the transaction from both parties.
“Essentially, buyers and sellers are both worried that the other side is going to change their mind,” he said.
“Buyers and sellers are also both worried about gazumping, but it’s interesting that the fear of gazumping is actually much greater than the prevalence.”
Ideally the process will be led by the estate agent when an offer is accepted with the buyer putting down around £500 to £1,000 as a commitment which would go towards the deposit.
For buyers, if the property turned out to be unmortgageable or a similar situation, or for sellers if the buyer was unable to get a mortgage, then they could withdraw without penalty.
Otherwise should one party pull out of the transaction because “they do not fancy it”, then the other party would receive the money.
“That doesn’t fully compensate for the emotional stress of the process that has broken down, but it does go some way to easing the financial stress,” Prior added.
Hit estate agent’s numbers
Prior also noted that while there was strong support from buyers and sellers for this agreement, it was proving difficult to get estate agents on board.
Around 50% of buyers and 70% of sellers would like to use the agreements if they were available, according to MHCLG research.
“We’re not making them mandatory at the moment,” Prior said
“We want to try this as an idea – a number of players independently came to us and said we think this might work.
“I know there is a concern among estate agents that it might reduce their sale subject to contract numbers – that they sign up people who ultimately are not going to make it through.
“But we think it could be used as a signal – as a seller perhaps that says something different about who they should pick and as a buyer you can feel more reassured that this transaction will make it through to the end.”
Does industry want it?
Reservation agreements have garnered support from consumer groups, however the Home Owners Alliance (HOA) warned that they would need to be mandated for estate agents to comply.
HOA founder and chief executive Paula Higgins noted that these were already standard in the new build sector with a small cost upfront which showed the buyers were being serious and had an obligation.
“We’re really hoping to get estate agents onside but I don’t think anything like that will happen on a voluntary basis,” she warned.
“I appreciate things need to be piloted. We appreciate all the effort that’s going into it right now, but let’s give it a fighting chance because I think it is a simple and easy way forward.
“But does the industry really want it?” she added.