The group charged with pioneering Reservation Agreements in the house buying process admits both the industry and the public are split on whether the initiative will be a success.
The admission comes in an update report from the group, seen by Estate Agent Today.
The Home Buying and Selling Group - set up in 2017 with representatives from the Ministry for Housing Communities and Local Government as well as from the estate agency, finance, insurance, conveyancing, PropTech and removals sectors - has been working on Reservation Agreements for over two years via a sub-group chaired by Beth Rudolf, director of delivery at the Conveyancing Association.
A draft agreement of the kind that could be used in the buying process has been in existence for some months, but the latest update from the HBSG suggests that both the industry and the public remain split on the chances of the initiative actually making house moving easier, quicker and possibly cheaper for consumers.
“The initial recommendation from the HBSG working group is that the agreement will be conditional upon the information available at the point of acceptance of offer and the buyer and seller’s circumstances. Both parties will be expected to pay a commitment deposit which they may lose if they breach the terms of the agreement. Any deposit monies paid will be protected by an arbitration process” says the latest update.
But the update then admits: “The industry and indeed consumers appear to be split on whether Reservation Agreements will be successful. They are though, already successfully used with existing homes sales and purchase by some agents and indeed in the new homes industry. Those that use them believe they improve the process and they believe they do save consumers time and money.”
MHCLG presentations at conveyancing and agency industries’ events in the past year have included results from studies suggesting the public is sceptical of the effectiveness of Reservation Agreements.
The January update from HBSG goes on to say: “There are still questions to be answered as to whether the agreements can work. For example, should they be voluntary or will they need to be compulsory? Some worry it may prevent sellers from putting properties on the market, while others feel it could add more complexity to the process.
“However, the HBSG working group is confident that if the government’s initial research suggests a trial of the Reservation Agreement is worthwhile, then industry will be ready and able to play its part in any pilot to find out how they would work in practice.
“If they are successful and property fall throughs are reduced and transactions times speeded up, this would substantially improve the home buying and selling process for all.”
The update also says that two PropTech companies already provide upfront legal packs with legally-binding agreements which agents and others in the industry could use if they wish.
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It is interesting to note that those that find them useful and helpful to consumers are the ones actually using them! Those that don't think they will work are the ones NOT using them! Reservation Agreements that work are those that 'Level the Playing Field' between buyer and seller. They encourage openness and transparency from the outset, encourage questions and communication between all parties. Ultimately they produce far more certainty than the current process does. The best Reservation Agreements are overwritten by mutual consent, have a clear arbitration process and are flexible on time scales. Having been directly involved, for over 30 years, in agency, transparency from the outset is often not very clear.
Reservation agreements, given that 28% to 32% of residential agreed sales fail, any mechanism to minimise cancelled sales should be embraced.
But, when you drill down into the figures, and find that of the 32% that fall through, less than 30% of these do so because the vendor or buyer goes back on the deal. It is clear that other factors need to be addressed.
As the major factors for a sale going off are: - adverse surveys, finance problems, problems with legals and problems in a chain type sale.
To my mind, the immediate payment of a non-refundable local authority search fee, at point of a sale being agreed, and monies on account by the buyer with the search paid for immediately. With an equal commitment made by the vendor if buying on, is better than any 'deposit'.
Or, maybe a meaningful 5% deposit, but, given the legal sector will say this is unfair, and cause complications later as a squabble develops due to adverse survey or defective title, I think this is just a minefield.
The real solution is simple, replace the slow pace of the transaction with new thinking, get the mathematicians, data scientists to sort the problem, and build a proper system.
So, that at point of sale, the title, the property, the finance, the survey, the searches, the identity of all concerned is all put together in a sealed digital process, where and exchange can be instantaneous.
The blocks to this road map, land registry (I know digital street exists), the present conveyancing process based on paper and preserving the status quo and there being no risk in the process, and the present lending system.
Estate agents are 'introducers' like Amazon they do not make anything - they facilitate commerce, the transfer of title, but, they do not engage in that process. The good news is that Gen-Z are going to by their force of numbers - (half of the global population is now Gen-Z) - make the digital transformation of the real estate a reality.
Just because mum and dad patiently waited 18 weeks to complete on their home, after choosing to buy it, does not mean that the tech savvy generation who are already re-shaping the world by bringing in more efficiencies will be passive passengers held to ransom.
No, just as Greta Thunberg is showing, if enough people say there is a better way, solutions will be found.
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