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Estate agents resisting reservation agreements – Ministry of Housing

  • 18/10/2018
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Estate agents resisting reservation agreements – Ministry of Housing
The government is pushing ahead with its plans for reservation agreements to become a standard part of the home buying and selling process.


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.


There are 5 Comment(s)

5 responses to “Estate agents resisting reservation agreements – Ministry of Housing”

  1. John Fisher says:

    So the buyers have to put in a small deposit but not the vendors? In my experience unless their is an issue with the survey and/or mortgage offer (which this will do nothing to alter) it is usually the vendor that threatens to pull out rather than the purchaser.

    • very deceptive says:

      Quite right, in my experience the three main threats to complete a property transaction are:
      The survey – so how will the purchaser be protected if there are a number of criticisms from a survey like a spot of damp, or roof issue, or other contentious issue?
      The vendor pulls out – This may be the top reason for sales falling through!
      The purchaser cannot achieve the mortgage – luckily this is a rarity for me, however I am sure this features frequently for estate agents.

  2. Paul Smulovitch says:

    Does this go far enough? i don’t think many transactions fall apart due to one party not fancying it anymore. I think the Scottish system of seeing all the details such as surveys upfront eliminates all this issue and becomes a binding contract once offer accepted and i don’t see why we cant adopt such a system which is fairer on all parties and shows commitment whereas in England so many get let down so often.

  3. Arron Bardoe says:

    There seem to be 2 failings with this proposal:

    Firstly, I cannot see in the above text where there is any commitment for vendors, who can be as problematic as buyers. The buyers gets their reservation fee refunded if the vendor withdraws, but may have already spent money on searches and possibly the valuation, but the vendor loses nothing. How would this combat gazumping, as a vendor remains free to accept another offer?

    Surely, the vendor should have to pay the same amount in to the pot to show their commitment? It might also encourage vendors to be more honest with disclosure of problems with the property or title, as they would risk losing money if these are later discovered.

    Secondly, there seems to be a view that there is a perfect house buying process. I have heard many buyers in Scotland and France complain about their process. Besides neither seems to facilitate the more dynamic housing market enjoyed by the rest of the UK.

    Oddly, the absence of commitment drives many transactions in life. Many gyms have removed their tie-in periods and found it increases membership and for longer periods. I suspect our house buying process is the same in encouraging a larger market, albeit with a higher failure rate.

    There seems to a desire to change the system because of the small number of buyers and vendors who have suffered from a transaction failing. Though unfortunate, there are possibly no pefect processes for ANYTHING in life – medicine, house building, car engines, schools, etc – so we need to allow for acceptable levels of failure in everything we do.

    Nonetheless, if the vendor is financially at risk as well, such contracts could be a good solution on a voluntary basis for nervous buyers and vendors.

  4. Steven Pearman says:

    Another ridiculous, but headline grabbing idea from the people who have very little grasp on reality and have undermined the housing market through a list of ill conceived ideas. That is assuming that their intention was not to stall the market and make new home builders step back once again.
    Who will manage the deposited funds?
    Who will cover the cost of such arrangements?
    Who will decide whose fault it is that a sale fell through?
    ie, chain of 8 properties and the last properties vendor dies putting the property into probate, whose fault is it and who would get the compensation?

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