Buyers should not be able to pull out of transactions without financial repercussions “just because they have decided that they do not like the avocado bathroom suite”, the housing minister has said.
At the Council for Licensed Conveyancers conference yesterday, housing minister Heather Wheeler said that reservation agreements, by which sellers and buyers pay deposits once they have agreed a deal, should help prevent the number of failed property transactions.
She told delegates: “We want to increase people’s commitment by ensuring they get some skin in the game.”
Wheeler said that the Government will run a field trial of reservation agreements this year.
Wheeler also told the conference what the Guild of Property Professionals heard last week and as EYE reported – that new guidance is to be published about referral fees that estate agents must disclose.
The guidance is due to come next month from the industry regulator NTSEAT (the National Trading Standards Estate Agency Team), with an updated code also set to be issued by The Property Ombudsman.
Wheeler warned that if a review in a year’s time shows that there is no change in behaviours, she will press for a ban on referral fees.
Yesterday’s conference also heard from Matt Prior, senior civil servant at the Ministry of Housing, Communities and Local Government.
He revealed that that reservation agreements that will be trialled are being designed with the help of Philip Freedman QC, chair of Mishcon de Reya, and a member of the Law Society’s land law and conveyancing committee.
He said that the Government is also commissioning research into the behavioural psychology of sellers and buyers to help decide how reservation agreements might work, and what the parties involved might have to pay if they decided to walk away from deals.
The Government wold also look at the circumstances in which parties could walk away from a deal without penalties – for example, bereavement or job loss.
The Law Society Gazette’s report of yesterday’s conference drew some notably unenthusiastic responses from conveyancers on the subject of reservation agreements.
One commented on situations where the same ‘factory’ firm of conveyancers acts for both buyer and seller; another asks, “Whatever happened to ‘subject to contract’?”; and others query the wisdom of putting another hurdle in the way of the house buying and selling process.
Nice idea in theory. Impossible in practice.
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Having just spent another 4 hours of my life yesterday, dealing with two self-important solicitors, an onanist of a surveyor who can’t tell the difference between knotweed and candy floss, a highly stressed buyer and an aggressively divorced couple of clients all of whom were throwing their toys out of the pram; ANYTHING that might improve the conveyancing system we have to work within gets a cautious thumbs up from me! (buyers and sellers both ended up calmed down and transaction proceeding)
Edited to add, neither should sellers be able to walk away with impunity.
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Agreed – especially the sellers obligations to continue as well. I have recently had a transaction where both vendor and buyer agreed to cover either sides legal fees on the basis of a cancelled transaction. It’s a modern block of flats and so far – so good.
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If a reservation fee comes in i would imagine in the short term 1-5 years the results would be that people will be put off moving with another perceived cost making the process more expensive. If this happens, government need to put significant money into marketing the benefits of such agreement.
When they decided HIPs were the way forward, the law was snuck in with very little if any public awareness of HIPs or the potential benefit. If reservation agreements come in, in the same fashion with agents having to deal with everything as usual it will be problematic to say the least.
Re referral fees, i dont care either way, but as stated previously there has to be a level playing field. The large companies will just have solicitors on monthly or annual retainers so will get round a fee ban that way.
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Often sellers are reluctant to accept an offer if they haven’t yet found somewhere to buy, but as we all know, without being under offer they are unable to get an offer accepted. It’s chicken and egg.
If they now face the risk of being penalised financially for accepting an offer but ultimately not moving because they haven’t found somewhere to buy, they just won’t accept an offer in the first place and the whole system will sieze up.
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Novel government idea to ban tenant fees and then propose legislation for additional purchaser costs.
Everybody knows that Avocado bathrooms are a “taste” crime that can be dealt with under existing EU law. (Up until 20.03.19 at least)
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Dare I say, that The Scottish System may be an alternative folks.
My understanding is that a Property Sale/Purchase in England revolves around Exchanging Contracts almost at the point of Entry Date so neither Buyer or Seller are locked-in/legally contracted until that point.
In contrast, in Scotland, after an acceptable offer has been agreed between Seller/Buyer, and a Formal Written Offer submitted by the Buyer our legal system moves forward with a view to Concluding Missives ( Exchanging Contracts ) within an initial 3/4 Week period (can be longer depending upon legal complexities etc, very occasionally shorter if cash buyer for instance – no mortgage process to go thru)…. this all moves forward regardless that the Date of Entry may be 3 or 4 months away.
The benefit – you lock buyer in earlier (and seller) and if any problems/ delays then you know earlier and can act/intervene/assist or simply decide that the property needs to go back on the market.
It’s the system I have worked with for just over 30 Years and I can see the benefits easily outweigh any negatives.
My 2 Guineas worth…..
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Thanks for the input, GPL – and this has enlightened me to things about the Scottish system that I didn’t previously know.
Roughly what percentage of agreed sales don’t make it to the Concluding Missives stage?
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PeeBee,
Typically, if I as the Estate Agent have “Qualified” the buyer and assessed their ability to actually deliver the money, then unless there is a dramatic change of circumstances (for various reasons) I would expect to see around 10% – 20% ‘fall thru” before Missives are Concluded.
An experienced/skilled Estate Agent will also have a “gut feeling” about each transaction. That experienced Estate Agent will work closely with their Seller to advise them on the “ability” of the Buyer to deliver the purchase price, then of course the whole Transaction moves forward to the Solicitors who also want to move the process forward.
It’s the fact that the “Contract” process is towards the front-end of the Transaction rather than the back-end which highlights “issues” much earlier. In essence it drives the willing buyer/seller forward whilst those that are merely going thru the motions more in hope are exposed much earlier.
It’s a good/relatively transparent system, and when I sell Scottish property to Buyers moving from England etc, generally they welcome the system once they understand it.
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Thank you for that extremely informative explanation, GPL.
South of the Carter Bar we all think we “know” the Scottish system – but much of what you’ve imparted today was certainly news to me.
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The only questions I have with that way, is what happens in the case of unavoidable change of circumstances? I was buying a property years ago, and then I came to my senses and realised what a toe-rag he was, so left him ad pulled out of the purchase. I know of someone who was made redundant, and someone who has had a terminal illness diagnosed. I assume that there are some safety-nets built in for those scenarios?
In general though, I think the Scottish system is a good one.
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CountryLass,
There are “exceptional” circumstances however it’s probably fair to say the Scottish System forces buyer/selller to focus on the Transaction before them, rather than tap-dance around a Transaction in an effort to delay etc….. when in reality they are not going to deliver in the end.
It’s a serious Transaction and it’s yet another reason why any Homeseller should trust an Experienced Local/High Street Estate Agent rather than the Lightweight Onliners who have the wrong motivation and in many, many cases, a lack of understanding of the real Homeselling/Buying process.
Real Estate Agency is NOT for Dummies, Online Only Companies continually seek to Dumb Down the whole process akin to some sort of Amazon style purchase?
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All in favour of a financial commitment by both parties. This has been muted for decades and principally blocked by the major players in the sales process, who would have to improve their game and lose out on the second bite of the cherry when the sale falls through. It won’t stop all fall-through’s as it has to have contingency for adverse survey and anomalies that can arise within conveyancing. Buyer puts down the deposit at offer, so they have to have finance agreed in principle by a lender (one headache over) and lose it for defaulting. The vendor pays nothing unless they default (exclude chain collapse), the amount that was taken as a deposit, payable to the purchaser. Sounds simple but I am sure readers will find reasons why it will not work or why one won’t want it to work!
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The system is already in place to do this. It just needs tweaking. Two clients of mine have recently entered into lock-in/lock out reservation agreements to reserve the properties they wanted and paid £8,000 to secure the sales which formed part of the purchase price and was treated as collateral to the main contract so that it did not fall foul of the Law of Property Act. On one of them the buyer dropped out at the last minute and the £8,000 compensated my vendor client for time wasted etc. It just needs to be made mandatory that the vendor enters into a recipricol agreement with the buyer and that there is certainty where the money is coming from when either buyer or seller do not have the readies to put down. Many countries that practice English Law (about 20% of the world’s population) have some similar system in operation. (Scotland is a completely different legal system to English Law).
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Yet another example of the government having no clue. Sellers are as guilty as buyers from withdrawing from deals And you can have as many “lock in” binding agreements as you like, until the conveyancing world start to do their job effectively and in a timely fashion, the speed of transactions will not change. So many sales fall through because buyers or sellers just get battle fatigue and give up. “Lock in” agreements will have to have time frames as part of their content. tTy getting all parties to agree to that at the outset when they have no real idea of how long their transaction might actually take. If they are being told they have to sign up and be committed,they simply will not feel confident enough to do so.
Every deal is unique, so the “contract” to bind at the outset,will have to have so many caveats it will be rendered useless.
The issue of fall throughs (published by someone last week as now nearing 50%,)has been exacerbated by the on-line cheepo (or is that non) services, where the wrong buyers and sellers are being put together and the deals get no nursemaiding.
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I would agree it appears to be over played. Over the decades the number of fall-throughs from just changing ones mind, in our experience is minimal, extremely annoying, expensive for chains. Most have had valid reasons for pulling out, mortgage lender and survey related being the main problem, with conveyancing issues for us more a take the flak for why its taking so long and rarely pull out to start all over again. One shouldn’t get short sighted by the number of sales agreed, that had no hope of ever getting to the finish line.
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