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TODAY'S OTHER NEWS

Reservation Agreements: Agency asks buyers for £5,000 - and it works

A London agency has told Estate Agent Today that it makes some of its buyers pay upwards of £5,000 in Reservation Agreements - well ahead of the likely introduction of a similar scheme by the government.

In recent weeks the Ministry of Housing, Communities and Local Government has become increasingly vocal about the Reservation Agreement concept, suggesting that a trial in the New Year could see some buyers in two pilot regions of the country being obliged to pay £500 to £1,000 in the form of a non-returnable deposit.

This would be to see if fall-throughs for these properties dropped significantly from the current 25 to 35 per cent level discovered by MHCLG research.

However, now Chris Osmond - sales director of the London agency JOHNS&CO - has told EAT that for sales of some properties the company follows the example of developers and require a reservation agreement as standard.

“For properties under £1m, we require a £2,000 reservation agreement deposit and £5,000 and upwards for properties of £1m and upwards” he says.

“The benefits of Reservation Agreements are lower fall-through rates. On average fall through rates in the market sit around 30 per cent. For us, they are a lot lower.  In Q2 this year, they were 18 per cent” he adds.

“Fall throughs cost all parties money - around £2,000 and higher for leasehold properties where there is even more paperwork and therefore higher charges. We use a Reservation Agreements to reduce fall throughs.  Our vendors also like it as it ensures a committed buyer who has skin in the game” explains Osmond.

“We also believe our RAs mean the transaction moves more quickly too - our average is a nine week turnaround from agreeing sale to exchange of contracts in Q2 this year.  This is even more impressive because all the properties we deal with are leasehold which come with lots of extra paperwork and typically take 50 to 60 per cent longer than a freehold sale” he continues.

“Reservation Agreements are not a guarantee of a sale going through but they definitely help. We are strong advocates that they help to keep the client journey smooth and transparent.  If you are buying something and committing to it where large costs are involved, it stands to reason that there are rules of engagement” he concludes.

Last week the MHCLG revealed that the New Year trial would be in two regions of the country which have so far not been identified, and would involve selected agencies and conveyancers.

They may be asked to trial different forms of agreement to gauge their impact on consumers, on fall-throughs, and the speed of the deal. The MHCLG says the government aims to reduce the typical time between a property first being marketed and a buyer moving in from its existing 20 weeks to between six and eight weeks.

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    We have been taking 1% non refundable reservation deposits since 2006. I’m sure other agents have done too. As a result, we very rarely have sales fall through and only deal with serious buyers. This concept is nothing new and is common place in most parts of the world. In estate agency conveyancing terms. The U.K. really is a third world country.

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    That's fine but what about sellers? We've had 2 pull the plug just before completion, each time costing the buyers thousands in mortgage broker/surveyor/legal fees?

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    Hi Debbie,

    We have a solution to assist with this. Drop me a quick email if you would like to know more - Michael.connelly@legalbricks.co.uk

     
    Bryan Mansell

    Debbie, look at gazeal.co.uk they have a full process and law society endorsed RA and both seller and buyer are bound by the agreement for 1%. No money upfront from the seller and .075% from the buyer.

     
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    Yes a good idea. Why has the rental sector gone in the other direction with potential tenants (buyers) now not having to pay any fees at all resulting in massive time wastage for all concerned?

  • Rob Hailstone

    Just wondering why the existence of an RA means the transaction moves more quickly?

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    I agree Rob, not sure it does anything to make transaction move any quicker!

     
    Phil Priest

    If anything it can slow things down as the buyer needs to organise the RA. Also who now holds this money? will it need a TDS style holding account?

     
  • Bryan Mansell

    Rob, due to the timescales that are agreed with buyer and seller at the commencement of the RA. Also with a digital legal pack dispatched on offer agreed, both save time.

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    My worry too Rob.

    Bryan - agreeing timescales ...bingo, that in itself is the solution to reducing fall throughs (not RAs which distract from cracking on, and have so many loop holes they are pointless and have ignored the real causes of fall throughs). Yet vast numbers of estate agents have zero interest in agreeing timescales, it is the oddest thing. They used to. Is it because commssion is so low, they will take any buyer?

    Just get estate agentts back to agreeing timescales, and don't accept a buyer if they have not buttoned down a timescale and downwards it goes. Understand the chain before you put a buyer forward.

    And then continue to take an active interest in helping the legal process - as too conveyancers take a salary and don't care about getting the job done pronot (they do if it is their own deal but otherwise far too many could care less) - keep up their pace as it's your baby, it's your deal, you put it together, so keep nurturing it and press those conveyancers.

    When I know the conveyancers in the chain, I do a global email to put us all in touch, It works a treat, focussing lawyers (and cc to the agents) on who the weakest link is.

    I now warn clients at the start that if they do not agree a timescale then they will face a high chance of an abortive deal. There is a direct link. And it is getting more frequent.

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    Well I don’t believe an RA is the answer. And who gets the fee due the vendor or estate agent.

    For me the elephant in the room is the solicitors and Land registry. Both are slow and are the problem (assuming the buyer has finance in place). Making a buyer pay another fee won’t speed up the process.

    Phil Priest

    Agree fully Pamela. Also management packs are a nightmare too, just as bad as the councils.

    One thing we have missed is the the potential for fraud. Buyers RA's and then pulling out, then i guess the seller or agent receives the funds.. as its a small amount then it could open the flood gates.

     
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    Reservation Agreements are pointless unless everyone in the chain has one too. If the ftb at the bottom of a long chain pulls out for no reason the fact that your buyer and seller have an RA at the other end of the chain will be meaningless :( It wouldn't have been your clients fault.....

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