Joe Arnold, Managing Director of Arnold & Baldwin Chartered Surveyors, says:
“Last month the Home Buying and Selling Group announced that it had already agreed standard wording for a Reservation Agreement between buyers and sellers and created a new upfront online information questionnaire for sellers.
This update provides more information on how the Reservation Agreement will work and some initial feedback as to whether it is likely to be successful.
There remain a number of questions to be answered, such as whether Reservation Agreements should be voluntary or compulsory, but work is continuing to ensure the right approach is eventually implemented. One thing for sure is that, if Reservation Agreements are successful and aborted property sales are reduced and transactions times speeded up, this would substantially improve the home buying and selling process for everyone involved."
Will Reservation Agreements work?
Following the 2017 Government’s Call for Evidence, The Ministry for Housing Communities and Local Government (MHCLG) wanted to find ways of reducing the number of failed transactions which can cost consumers hundreds of millions a year. They were keen to see if Reservation Agreements would help to increase the commitment between buyers and sellers and reduce not only their fears of the sale falling through but also the actual number of sales falling through.
MHCLG is committed to working with the industry to develop a short Reservation Agreement which could be tested in behavioural insight research and, if successful, piloted by the property industry.
The Home Buying and Selling Group (HBSG) set up a working group, chaired by Beth Rudolf, Director of Delivery at the Conveyancing Association, to see if standard wording for a Reservation Agreement between the buyer and seller could be agreed by all the required legal entities and this was achieved in the Autumn of 2019.
If you wish to view the Reservation Agreement, please contact firstname.lastname@example.org
How will the Reservation Agreement work?
The initial recommendation from the HBSG working group is that the agreement will be conditional upon the information available at the point of acceptance of offer and the buyer and seller’s circumstances. Both parties will be expected to pay a commitment deposit which they may lose if they breach the terms of the agreement. Any deposit monies paid will be protected by an arbitration process.
Will Reservation Agreements be successful?
The industry and indeed consumers appear to be split on whether Reservation Agreements will be successful.
They are though, already successfully used with existing homes sales and purchase by some agents and indeed in the new homes industry. Those that use them believe they improve the process and they believe they do save consumers time and money.
Two companies such as Gazeal and Honesty Box are providing upfront legal packs which include a legally binding agreement which means buyers can’t ‘walk away’, nor can purchasers ‘gazunder’ the buyer later in the home buying and selling process.
There are still questions to be answered as to whether the agreements can work. For example, should they be voluntary or will they need to be compulsory? Some worry it may prevent sellers from putting properties on the market, while others feel it could add more complexity to the process.
However, the HBSG working group is confident that if the Government’s initial research suggests a trial of the Reservation Agreement is worthwhile, then industry will be ready and able to play its part in any pilot to find out how they would work in practice.
If they are successful and property fall throughs are reduced and transactions times speeded up, this would substantially improve the home buying and selling process for all.
If you are interested in participating in a future pilot or for more information about the Reservation agreement please contact the working group Chair, Beth Rudolf email@example.com
For more information about the HBSG please contact the Chair, Kate Faulkner via firstname.lastname@example.org or on 07974 750562.