Reservation Agreements may require bigger financial penalties than the £500 to £1,000 currently envisaged if they are to work.
That’s the view of Gary Barker, chief executive of PropTech giant Reapit.
In an article in Forbes magazine Barker says it’s in everyone’s interest to have a deterrent against gazumping - and he admits that he has himself lost £25,000 as a victim of this.
Asking buyers to pay an additional fee would act as a deterrent to prevent them from backing out of an agreement once an offer has been made, he says.
But he feels the current proposals - still being formed up by the Ministry of Housing, Communities and Local Government ahead of a trial early in 2020 - may be insufficient.
“While in theory a reservation agreement would act to prevent gazumping, in practice it’s unlikely to have much effect if the deterrent isn’t significant on the seller. Losing a reservation agreement deposit or being charged a small fine of say £500 to £1,000 would be a small price to pay if it meant the seller could still accept a higher offer that’s worth thousands more” says Barker.
He also says the until government makes clear under what exceptional circumstances a Reservation Agreement could be declared void - through a bereavement or job loss perhaps - the success of the idea remains uncertain.
He adds: “What might be needed is either a heftier financial penalty, such as where the gazumping party pays the full fees forfeited by the offended party, or a more complex and drawn out withdrawal process brought about by the signing of legally binding procedures far earlier on in the process. Or both.”
These may be necessary, he says, “because buying a house isn’t a Marks & Spencer purchase, and neither should the policies around exchanges be akin to returning that green-checked shirt you didn’t like after all.”
The MHCLG representative says the New Year trial will be conducted in two regions of the country, not yet selected; the conveyancers and agents who will be involved have also not been selected yet.
The scope and details of the trial are still being assessed by a company instructed by the ministry.
An MHCLG representative has told Estate Agent Today that it’s likely that different variations of reservation agreement will be tested - for example, some may have a non-returnable deposit of £500 put down by the purchaser, while others may have a £1,000 sum, and others not involving any advance payment at all.
While the specifics of the trial remain to be finalised, several agents have revealed that they operate similar schemes themselves, and in some cases have done so for several years.
* Meanwhile Gazeal, a PropTech firm with a Reservation Agreement offer to agents which ties buyers and sellers into a transaction after acceptance of an offer, has announced a partnership with the Mortgage Advice Bureau.
Most of MAB’s 1,350 advisers operate through agency offices, and will advise Gazeal if buyers have a sound financial status before making any offer subject to a RA.
Gazeal’s Bryan Mansell says: “We feel strongly that the customer gets key advice throughout the process, thus enabling them to make decisions with more information available.We provide the property information, we also provide information on our conveyancing partners and now with our partnership with Mortgage Advice Bureau, mortgages.”