A sale falling out of bed at the eleventh hour is one of the biggest bugbears for those wanting to move home. But the government has now proposed a solution in the form of ‘reservation agreements’, which it now plans to trial early next year.
Under this system, which is common in Europe, both buyers and sellers will need to put down a non-returnable deposit of between £500 and £1,000 when they enter into the offer process.
The theory is that this will reduce the time between making an offer and exchange, by ensuring both parties are fully committed to the sale. But will it work in the notoriously competitive London market?
“The twin evils of gazumping and gazundering send buyers’ and sellers’ blood pressure through the roof, whilst mugging their bank accounts,” says Trevor Abrahmsohn, who runs North London property agent Glentree Estates. “Anything that can ameliorate this pain must be encouraged.”
The government estimates that £270m is spent every year on fees for house sales that don’t complete
At the moment, up to 35 per cent of home sales fall through, and the government estimates that £270m is spent every year on fees for house sales that don’t complete. Giving vendors a disincentive to jump ship when they get a higher offer could help out those with a tight budget.
“On several occasions we have experienced sellers withdrawing for no other reason than to proceed with a higher offer,” says Bruce Burkitt, founder of developer Property Experts. “For a first time buyer with limited funds, this can be emotionally and financially damaging.”
However, others say that reservation agreements will just add another layer of bureaucracy to an already complicated process.
Buying agent Jo Eccles of SP Property Partners says some agents already use an “exclusivity clause” where buyers pay a deposit to lock out other bidders – but “in practice they can be quite hard to enforce” because parties must still be allowed to withdraw in exceptional circumstances, for example if an unexpected issue crops up in the survey.
The sheer number of parties involved in some property deals might also be a problem. James Wyatt, agent at Barton Wyatt, says reservation agreements “won’t be helpful in long chains” because somewhere along the line there will always be a buyer who is legitimately struggling to find a new home – particularly in London where there are few homes coming to market – and this makes delays inevitable.
Reservation agreements are a nice idea – but whether they work in practice is another matter.