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.”