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TPO defends code change over buyers' pre-contract deposits

The Property Ombudsman’s office has defended a change to its code of practice which, according to a national newspaper, means agents in England and Wales can ask purchasers for £1,000 deposits to indicate the seriousness of their intent to buy.

The Guardian says that accepting pre-contract deposits is banned for agents in Scotland, and while not illegal in England and Wales it was - until recently - in contravention of TPO’s code of conduct.

The Guardian on Saturday stated: “Until recently the code, which covers 95% of sales agents, told firms unequivocally that ‘you should not take pre-contract deposits’” although this did not apply to new-builds. But it says this was changed late last year and deposits are now acceptable in certain circumstances.

The paper says it has been contacted “by a number of angry would-be homebuyers who handed over cash to an estate agent and are now battling to get it back” and cites a case study of a couple allegedly in dispute with East London estate agency Property Link over what they consider to be a deposit and what the agency describes as a non-refundable reservation fee.  

The newspaper also refers to two other cases apparently involving deposits.

Estate Agent Today has asked The Property Ombudsman for any comments in addition to those included in The Guardian piece, which says: “Katrine Sporle, the ombudsman, acknowledges that prior to last October the code only allowed agents to accept a so-called ‘pre-contract deposit’ from a buyer if it was a new-build home sale.

"The rationale, she says, was ‘to prevent unscrupulous agents from simply demanding monies from buyers for, say, removing a house from the market’. However, she says the code must adapt to market conditions, adding: ‘Where there are more buyers than properties, there is a heightened risk of gazumping, more failed transactions and more buyers left significantly out of pocket.’”

The piece goes on to state that TPO says that, if undertaken properly, a pre-contract deposit “has the potential to give a buyer and a seller the confidence that the transaction is likely to complete – the potential for gazumping is significantly reduced, as is the risk of last-minute price negotiations”.

It concludes by quoting Sporle saying she still recommends that agents should avoid the practice although “it was considered prudent to set out what steps they must take when they did receive an instruction from a seller to collect a deposit from a buyer”.

You can see the full Guardian piece here.

  • James Robinson

    Is this a leap year or a blue moon? A pragmatic U-turn from the TPO, however the article doesn’t say if it is limiting its support to just £1000 pre-contract. In central London a £1000 would carry next to no weight.
    Either way it will be fantastic if they release a TPO approved deposit agreement after all the delays we experience while negotiating the terms of these deposits often means we exchange contracts before we get their agreement.

  • Lee Blackman MNAEA MARLA

    The demand for deposits from buyers is not something we have come across in south east Kent even when there are multiple purchasers for a property. In my opinion it is a good idea in principal but it needs clear regulation to avoid people being taken advantage of. The fact that in 2017 a purchaser (or seller) can withdraw from a transaction without reasonable cause, resulting in financial and emotional distress to the other party is astonishing to me. You can't get out of a telephone contract or gym membership without penalty but you can with the purchase/sale of a property!

    The lack of willing from the Government to update the laws surrounding residential property transactions is very disappointing. Various commentary in the past has suggested this is partly due to the feeling that by further regulating the buying process it would slow the market down but I would argue the opposite. Taking steps to safeguard both parties from unreasonable withdrawal would give confidence to the process and remove so much unnecessary stress and sleepless nights during the conveyancing. Thinking of the practical aspects, there is of course the issue relating to available cash funds to make deposits with, being that everyone is already stretched so far when finding their deposit and fees in the first place.

    I do of course appreciate that the article is designed to highlight the undesirable practices of the few.

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    When I started as a junior neg in the early 80's, taking £100 returnable deposit on a sale being agreed was normal practice in the part of Surrey where I worked. I can't remember any serious buyers ever complaining, and those who did or refused to pay were not precluded from buying the property, but the warning signs went up and, interesting, most of those people were the buyers who caused problems or withdrew from their purchase later.

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