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TODAY'S OTHER NEWS

Leading agent backs reservation agreements ahead of pilot project

One of the country’s most prominent estate agents has given renewed backing to a pilot project on reservation agreements, being tested as a way of reducing fall-throughs.

Trevor Abrahmsohn, head of Glentree Estates in London and a founder of the original mutual company behind OnTheMarket, says the Ministry of Housing, Communities and Local Government - which wants to trial reservation agreements in parts of the country at the new year, with purchasers committing a non-returnable deposit of £500 to £1,000 - should be applauded for the initiative.

“The plan operates around the principle that when buyer and seller have agreed on a deal and the conveyancing work is processed, both parties need to keep to their word and honour their pledge, otherwise they have to pay a price for the volte-face” explains Abrahmsohn. 

“The prospective purchaser spends good money on structural surveys, solicitor’s fees and mortgage providers, whilst the seller is also liable for some legal fees, but is modest when compared to the buyer” he adds.

Then, in a blog on his website, Abrahmsohn continues: “Though slightly different in their composition, the Scottish or American-based conveyancing models make a valiant attempt to crystalise a sale in far less time. The result is that you exchange an instant contract and pay a deposit, subject to the chaser obtaining finance and a structural survey, if applicable. This is in sharp contrast to the UK system, where exchange of the contract for a land purchase only takes place once the due diligence has been carried out.”

He is not blind to the possibility of people exploiting even the new MHCLG rules, which will offer very few opportunities for buyers to backtrack without paying a penalty.

In the US, Abrahmsohn warns, “underhand tactics include deliberately frustrating the process of obtaining finance in order to exit an unwanted purchase, which may have already been contracted. Or alternatively, exaggerating the results of a structural survey in order to scuttle away from a commitment.”

He goes on: “We at Glentree have one of the lowest failure rates in the Industry of agreed deals ... At the end of a meeting with all parties, we get buyer and seller to shake hands on the terms of the deal, which we then call ‘a moral contract’. We know all too well that there is a cooling off period until contracts are formally exchanged and it is in this hiatus, where problems can occur, which can result in the demise of a deal. This moral contract will hold anyone who has a conscience to the terms of the original deal, making it more likely that the transaction will be consummated.”

  • Andrew Stanton Estate Agency Insights Strategies

    I am with Trevor, back in the day, in the mid-1990's once a sale was agreed, we would get the vendor and the buyer to attend a meeting in the office and discuss the sale, including estimated timescales for key events, including a likely exchange date. We would then get the parties to shake hands and send out the minutes of the meeting, to all parties including both solicitors, with the memorandum of sale.

    Often we would get solicitors on the telephone suffering from apoplexy, and we would say that the minutes reflected the wishes of the parties and we were hopeful they could comply, especially with the time-frames.

  • Matthew Payne

    It needs resolving but adding another layer of bureaucracy to an already painfully slow process is not the solution. Buyer and vendor behaviour are a symptom of a broken system, not the system has become broken by their behaviour. Think of the practicalities of this proposal that would affect normal everyday people. A buyer can’t be expected to commit blindly to a transaction for 19 weeks, on the back of a handshake, with the vendor providing them with very little detail about what they are buying, hence they do their due diligence. In the 90s, things happened a lot quicker, a search took 2 weeks at most, an expedited search 48 hours, you could get a freehold deal over the line in 4 weeks. Unless you get the vendor to provide full disclosure, a survey in advance, to sign an affidavit that there have been no material omissions then there is still so much to establish, especially on leaseholds, hence subject to contract, subject to survey. Likewise, a vendor cannot be expected to make the same commitments for different reasons for 19 weeks, to a buyer who drags their heels. Does a buyer need to demonstrate their financial capabilities in the same way? Do you then need to go all the way down or up a chain to do the same thing?

    Then there is other mitigation, in a third of a year, a lot of life stuff can go on, people lose their jobs, get promoted, get pregnant, become ill, there could be many innocent and legitimate reasons why buyers and vendors could no longer honour their commitments. In the real world away from affluent parts of London where buyers and sellers no doubt keep £1000 in loose change in the centre arm console of their Bentleys, £1000 is a huge sum of money to jeopardise on a system that needs fundamental reform. Why should the average UK buyer spending less than £250,000 and saving sometimes for years to pull their deposit together, be told they have to put down a £1000 deposit that they will lose if they don’t proceed, which more often than not is not simply because they have changed their minds, hardly ever in fact. It’s title defects, survey results, down valuations, collapsed chains, search results, neighbours, personal challenges meaning they can no longer buy (or sell) at all because it has taken so long. The list is endless and one you can’t legislate for. If you do allow a huge list people will just declare that reason anyway, nothing will change. If you deny any mitigation list at all, you will punish people for things beyond their control. People will quickly work it out and the market will grind to a halt from the bottom up, people won’t move.

    It feels like a cottage industry is being created again like HIPs just to make some cash, not solve a problem. The wagons are circling, I note there are already a few companies popping up ready to go with these agreements. The focus should be on getting all stakeholders together lenders, lawyers, councils, agents, HMG and establishing how it can be done as quickly as it was 20 years ago, not force people to accept the current broken system because it’s quick and easy.

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    Well said Matthew. RAs are no kind of solution to keep the conveyancing process running to an exchange. As a conveyancer I'd jump at the chance not to have abortive deals, but RAs are not relevant to what cause deals to collapse. Another white elephant like Veyo always was destined to be the second conveyancers learned about it.

    The US and other jurisdictions versus England & Wales is like comparing apples with oranges. And I certainly would not be advancing the US system as any kind of kite mark.

    My goodness, right this minute my family are currently selling a US property, and what a shambles already. Within days of marketing our Real Estate Agent (paid 6% ..... for listing it locally - as there is no Rightmove - and don't think for a moment it is like the tv where they have open houses and prep the house with furniture and really earn their 6%) sends us - what I had to struggle in my capacity as a solicitor to even understrand - a contract that we are free to accept or reject (and on an aside, the US need to update their legal language, my goodness, how old fashioned, and this said by a UK lawyer) a written offer from a buyer with their part of the contract signed. All we have to do is sign to agree it. Yet we have not completed any equivalent of a property information form (to tell them our neighbours are crazy (ok they are not, but we could have), and certainly given no leasehold management information to reveal what massive charges and forthcomign expense is likely yet (ok it isnt but see the point) so I cannot for one minute think it will bind them if we accept it, as this will all be subject to that sort of information......like an RA.....and certainly no different to E&Wales.

    Instead fix some of the real issues why deals collapse:
    - agents not agreeing timescales as a condition of having your offer accepted...so they have to know the chain, and make sure dates along each link have been agreed
    - less conveyancers allowed to practise and who must have some sort of legal qualification
    - no offers accepted without a MIP
    - Councils with slow turnaround times, sellers should commission the search while marketing

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    I have been working in conveyancing for almost forty years. In that time the basic way the system works hasn't changed, so if it ain't broke why fix it?

    What people should be looking at instead is why the situation we presently have with huge delays in transactions proceeding, and poor advice being given to clients and standards being at an all time low. Estate Agents should be looking at themselves in this regard, it is after all they who chase the lucre by recommending the firms who are the problem. Those firms and their working practices never existed until a few years ago and Estate agents seemed to survive perfectly well then. So clearly banning fees paid for work would be an obvious first step to improve matters, with a hopeful knock on effect that these factory firms slowly disappear back to from where they came. That would make everybody's job easier and assist sellers and buyers.
    The legal qualification referred to by Tim Higham is a red herring. You can be academically brilliant but practically...useless so an exam is meaningless. What I am saying is you can gain the highest qualification you like but if you cannot put into practice then it's as much use as a chocolate fireguard...
    There are plenty of Solicitors out there who prove that and even more Licenced Conveyancers.
    There is a very long and complicated discussion to be had on how to put right the property market. Reservation Agreements are an irrelevance in my opinion only being proposed by people with a vested interest.

    Paul Barrett

    Perhaps rather than exams CPD Accreditation might be a more effective way of ensuring knowledgeable employees.
    An element of grandfathering would obviously make sense.
    But there needs to be barriers to entry to ensure that ultimately EA employees have a good verifiable knowledge of what they are doing.
    I'm sure some sort of EA CPD syllabus could be created to achieve these objectives

     
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