Reservation agreements are likely to be back in the news on Wednesday when the Government is due to announce the results of a survey of consumers on the specific topic.
Public reaction is understood to be highly supportive of legally binding agreements being made at acceptance of offer stage, designed to prevent fall-throughs and money wasted by both buyers and sellers.
The Government is now likely to set the wheels in motion for trials, first announced at the start of this year by then housing minister Heather Wheeler. The Law Society is supportive of the general concept.
Reservation agreements are generally written and agreed individually for each property, while one company, Gazeal, provides a service covering all property. It says it does not have a direct competitor.
However, Gazeal has revealed that it has had to completely overhaul its original product, making it more understandable for agents who previously struggled with it.
Buyers no longer have to commit immediately to a reservation agreement while sellers can ‘pause’ it.
Estate agency veteran Bryan Mansell was called in by Gazeal some six months ago to put together a training programme for estate agents. As a result, he said, he saw how the service could be re-engineered to serve all customers better, not those who were just chain-free.
He said: “Agents were the ones having to take the Gazeal product on board and present it to their buyers and sellers, but some found it difficult to explain clearly.
“Their attitude tended to be that they would wait to see.
“Some of our terminology could make the agreement sound like it was a legal commitment to buy the property, instead of simply ‘reserving’ the property as the conveyancing takes place leading up to exchange. Furthermore the agreement was at the time unlikely to work in chains.
“We took on board customer feedback and I have helped re-engineer our agreement, together with our platform that supports the process. We are delighted that now we have the first reservation agreement that can function inside a chain, not dependent on the other links.”
The new ‘chain safe’ system effectively has a pause button – if the seller in the chain has not found somewhere to move to but already has a buyer, the agreement can be put on hold until the seller’s offer on their own next property is accepted (see the worked example at the end).
Mansell also thinks that this will put sellers in a strong position when looking for their next house. “Of course this has to be tested, but I would think that such buyers will be taken seriously, simply because they have a reservation agreement on their own property. A lot will depend on how it is perceived by vendors and how it is explained by agents.”
Other changes include more flexible time-frames – prospective buyers who would like to commit to the transaction have 14 days (21 if they are mortgaged) to get into a position of readiness before they need to sign, and can have longer if agreed with the seller.
The buyer no longer has to put down a chunky deposit, but instead pay 0.075% of the agreed purchase price to Gazeal, to buy a ‘reservation deposit guarantee’. That equates to £75 per every £100,000. If either party default, outside of the terms of the agreement, then 1% of the agreed price is paid to the other party by Gazeal. The defaulting party has the liability to repay this under the terms of the agreement.
Take-up by agents of the Gazeal product is now set to grow, Mansell believes: “We have 600 agents we are in the process of pitching to and training – and they seem to like the changes we have made.”
Mansell, a former managing director with both Countrywide and Your Move, said that one of the features of today’s market is the length of time that properties are taking to go from offer accepted to exchange.
Gazeal is free to agents and there are no contracts: “It is just a service that they can use, and which should greatly increase the prospect of an agent getting their commission earlier,” he said.
Gazeal is mainly monetised at completion, when the seller and buyer pay £250 each. It also earns smaller sums first through the near-instant provision of search and title information to the prospective buyer’s solicitor.
Mansell said: “I myself moved about 18 months ago and was stuck in a five-property chain. The uncertainty is the worst thing because you cannot make plans – you can’t confirm schools or even choose carpets.
“Research from Rightmove suggests that a five-link chain means that there’s a 50% chance of sales falling through.
“Our system links buyers and sellers together in a chain, allowing it to proceed. That is, of course, to the benefit of those in the chain as it is to their agents whose commission is far more assured.”
The following example was provided by Gazeal to show how it will now work where there are chains:
Sellers Andy and Belinda are registered with a Gazeal agent and this agent has found Charlie and Davina who are first-time buyers
- Charlie and Davina agree to sign a reservation agreement with Andy and Belinda – so both make a commitment to each other, subject to the house being removed from the market and the chain becoming complete. At this stage the reservation agreement is pending but not active.
- Andy and Belinda find a house they want to buy.
- They receive a poor survey on that house and do not make an offer on the property – delaying their transaction with Charlie and Davina.
- The pending reservation agreement between Andy and Belinda and Charlie and Davina is now paused by 30 days by mutual agreement – giving the sellers time to find a new property to buy.
- Andy and Belinda find a new property. The seller’s agent is not registered with Gazeal but will be offered a reservation agreement on behalf of his clients which may be accepted or declined.
- Now that the chain is complete, because Andy and Belinda’s offer on the new house has been accepted, the reservation agreement between Charlie and Davina goes live and the sale proceeds without impediments.
- Gazeal says that its reservation agreement is binding in law. If either the seller or buyer defaults and there is a dispute, Gazeal says it will provide an independent arbitration service with an eminent QC.
Ok so i have many questions. Firstly how much do Charlie and Davina have to pay the owners if they pull out due to issues on the survey or they just simply fail to get a mortgage?
How much do Andy and Belinda pay their buyers if they pull out for any reason. How long do Andy and Belinda get to find a property to buy under said reservation agreement.
Bullet point 3, abut Andy and Belinda not making an offer on the house because of a bad survey??? This isnt how the housing market works. Andy and Belinda would make the offer, expect the property to be removed from the market whilst they do their mortgage application and survey valuation/survey etc.
This will be another nail in the coffin for the housing market, government and probably Gazeal dont understand the housing market. Faced with yet more potential costs, even more vendors wont put their houses on the market until they find their dream home. Fall throughs in my opinion are not the main obstacle facing our industry and funding a company jumping on the back of a problem that doesnt effect that many people is money for old rope.
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ArthurHouse02, thank you for your comments,
1. Charlie and Davina have no liability if they are unable to gain a mortgage. They would need to provide evidence that they are unable to gain the finance required and this would be confirmed by their conveyancer.
2. The sellers and buyers would not sign the agreement if they had not yet found a property to buy. Both parties would have agreed to proceed under the reservation agreement once an onward property had been identified. In the event that the chain breaks at any time after it has been formed, then a 30 day ‘grace period’ is agreed by mutual consent. This can be extended if both parties are happy to. If not then either can walk away without liability.
3. Fair point, supposed to read “that they withdraw from the agreed purchase due to a bad survey”.This would then cause their agreement with the FTB to pause and they have the 30 day period to identify a new purchase, again subject to mutual consent.
4. No nail in any coffin, in fact the very opposite, unlike HIPs which did what you say, due to the upfront cost and seller survey which was was not accepted by buyers lenders, we understand the house market fully. In fact having been directly responsible for 000’s of property sales, probably more in my time, it is about time that sellers provided more transparency, earlier, about their property. ZERO upfront costs!. Sellers want to give their potential buyer a chance to make an offer with a better understanding of what they are buying. Sellers want to accept an offer from a buyer that they can trust a little more. Agents working with more detail about the property enabling them to provide advice throughout the process, mortgage brokers and conveyancers being enabled to work faster and earlier in the transaction. Best of all both seller and buyer able to proceed to exchange with more certainty about each other. No money for old rope, solving problems that are very real in the current transaction process and faced by home sellers and buyers all over the UK, every day. Sales fall through, fact. If we can help reduce this (as we are already doing) with NO COST until completion, as the article says, I say that this is in the consumers interest and the agents that we already work with who embrace this are providing a better service to customers than the ones that don’t.
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Completely unnecessary for the housing market. Probably one of the worst ideas since Veyo (which cost wasted millions and no heads rolled….that still needs investigating).
Anyone who saw the last draft of the proposed reservation agreement will know, it was clunky with legal jargon, it made no sense in parts, and the problem with any RA (which is why they are so rarely used) is that they are complete and scary distraction from just getting on with the conveyancing.
More deals actually fall apart for the following three reasons than the reason we need RAs:
1. too many estate agents are under pressure more than ever due to much lower commission, and so they just grab any buyer and fail to vet them properly
2. it is not currently a legal requirement that to make an offer on a property you must first have written evidence of a mortgage in principle
3. too many conveyancers are not fit to offer a legal service to the public (a legal business can promote the office cleaner and put them to work as a conveyancer…nothing stopping them)
….as a result of 1,2 or 3, deals have no chance of getting to exchange.
RAs are not what the housing market needs, not even 1% needed.
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TwitterSailsPropNews
Thanks for your comments, although having worked in our industry without pause for 3 decades I have seen many things much worse, including, as you say, Veyo.
Happy for you to have a read of our RA. We are part of the HBSG and agree that the last draft of the RA was, as you say, clunky! However our version is far from it.
So, let’s tackle your points.
1. Our agreement, and digital legal pack, assist coneyancers by saving them time so they ‘can just get on with conveyancing’
2. Agents under pressure, agree with you, however, I am not sure that I understand what ‘grab buyers’ means. If it is as you say simply that they do not qualify well, then surely even more reason to have an agreement that protects the seller when the sale starts? In addition our platform enables the buyer, to confirm their position helping agents to vet them more thoroughly.
3. Mortgage in Principle is not a legal requirement to make an offer, correct. The How to Buy guide advises buyers to look into their mortgage much earlier in the process and I believe, from my vast experience, that this is good advice from agents to buyers and presents an opportunity for good agents to help buyers with mortgage services.
4. Don’t entirely disagree with this, however working alongside Rob Hailstone and the Bold Legal Group with its 675 member firms, there are some pretty impressive firms out there who provide an exceptional service to consumers. I guess that the same can be said for Agents right?
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As I say, I consider the product is THE least relevant of any change that should be made to the housing market. And my goodness, there needs to be a lot done. I’d jump all over the idea if it would make a real positive diffference in practice, as conveyancers and estate agents love deals to go through.
(I would also avoid talk of ‘digital legal packs’ – frightening prospect as you only have to look at auction packs, or vast numbers of developer legal packs (the developers do not even know how their reputations are being hurt by the quality of ‘their’ packs) for new build, to see shoddy ‘packs’ .)
But I appreciate your vested interest in selling your product, and I am sure you are speaking to the right decision makers.
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“The pending reservation agreement between Andy and Belinda and Charlie and Davina is now paused by 30 days by mutual agreement – giving the sellers time to find a new property to buy.”
So if the RA is “paused by mutual agreement” does this give the buyers the opportunity to offer elsewhere?
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Gruntfuttock
If the agreement is paused by 30 days by mutual consent, the buyer can offer elsewhere, however this would be a breach and the buyer would be liable for 1%. By mutual consent means they would still have agreed to be bound by the terms of their agreement with the seller.
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ArthurHouse02, thank you for your comments,
1. Charlie and Davina have no liability if they are unable to gain a mortgage. They would need to provide evidence that they are unable to gain the finance required and this would be confirmed by their conveyancer.
2. The sellers and buyers would not sign the agreement if they had not yet found a property to buy. Both parties would have agreed to proceed under the reservation agreement once an onward property had been identified. In the event that the chain breaks at any time after it has been formed, then a 30 day ‘grace period’ is agreed by mutual consent. This can be extended if both parties are happy to. If not then either can walk away without liability.
3. Fair point, supposed to read “that they withdraw from the agreed purchase due to a bad survey”.This would then cause their agreement with the FTB to pause and they have the 30 day period to identify a new purchase, again subject to mutual consent.
4. No nail in any coffin, in fact the very opposite, unlike HIPs which did what you say, due to the upfront cost and seller survey which was was not accepted by buyers lenders, we understand the house market fully. In fact having been directly responsible for 000’s of property sales, probably more in my time, it is about time that sellers provided more transparency, earlier, about their property. ZERO upfront costs!. Sellers want to give their potential buyer a chance to make an offer with a better understanding of what they are buying. Sellers want to accept an offer from a buyer that they can trust a little more. Agents working with more detail about the property enabling them to provide advice throughout the process, mortgage brokers and conveyancers being enabled to work faster and earlier in the transaction. Best of all both seller and buyer able to proceed to exchange with more certainty about each other. No money for old rope, solving problems that are very real in the current transaction process and faced by home sellers and buyers all over the UK, every day. Sales fall through, fact. If we can help reduce this (as we are already doing) with NO COST until completion, as the article says, I say that this is in the consumers interest and the agents that we already work with who embrace this are providing a better service to customers than the ones that don’t.
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All you are really doing which is highly commendable is setting out the case to use a properly experienced and trained estate agent who operates best practice.
As oneofthe previous posters said “Too many estate agents are under pressure more than ever due to much lower commission, and so they just grab any buyer and fail to vet them properly”
“Sellers want to accept an offer from a buyer they trust a little more”
Exactly that’s why they choose a good agent,pay them properly to sort the wheat from the chaff.Someone who has their fingers up the nose and their hands around the throat of a sales progression .There are simple lockout agreements currently in place if required . Signing a deal with Gazeal who trouser a fee isn’t going to stop a chain from breaking down .Buyers and sellers will be looking to find any flimsy excuse to hang their hat on purely to avoid the payment of the penalty fee for withdrawing
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Hillofwad71
Thank you for your comment, our agreement is designed to protect sellers and buyers and also agents from these ‘flimsy excuses’. Our agreement has certain circumstances allowing for a withdrawal, such as un-negotiable down valuation, issues with title etc, but a flimsy excuse will come with a penalty unless it is proven to be in line with what is set out in the agreement. Ultimately we uncover the flimsy excuses before the sale starts so that sellers no longer have to bear abortive costs, and as importantly, the agent does not begin months of progression work with a non committed purchaser for which they receive no payment for the hard work done. Surely a good thing for all right?
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Utopian again relying on conveyancers to prepare a starter pack with full report on title , searches anticipated replies to enquiries before contract before setting sail might not only be longwinded, but prohibitive in terms of cost for many vendors
To be honest the arrival of a surveyor for the valuation inspection and a blizzard of correspondence from the buyer sols cranking up costs indicates you have a motivated buyer
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agreed, thats why we deliver most of this to the conveyancers at the beginning of the sale. I agree that the arrival of a surveyor and a blizzard of correspondence can be construed as a sign of motivation, so with an agreeement in place, this shows your motivated buyer that the seller is also very committed to the sale to them. Benefits all involved.
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Most of the points highlighted above coupled with a low buyer’s reservation fee which many could afford to lose if a better property came up, and sellers able to press a pause key make this fairly pointless. Lock in/out exclusivity agreements are already in place, more secure and are increasingly used where both buyer and seller want certainty. We’ve used these a couple of times this year and as long as both solicitors are on board (always a question mark with anything!) they work well.
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Richard Copus, thanks for taking the time to comment. There is a low buyer’s fee, however, they retain the liability for a 1% payment, which, for some may not be enough of a deterent, but at least the seller / buyer will be compensated for loss of abortive costs. As an agent for many years I have used many lock in / out agreements, however, most have to be written per property, are used sparingly, are generally not full market friendly and most, if not all, never work in a chain. You are right with “as long as both solicitors are on board”. Our full market and chain friendly agreement are received well by conveyancers as they lighten the work load, not add to it, not to mention the time saving provided by our digital legal pack, including searches and title verification which are instantly transferred to the buyers conveyancer upon sale start.
Like in all things, in all markets, many agents and conveyancers will ‘wait to see’ which direction of travel the industry takes, certainly many agents and conveyancers are joining with us and leading that change and many will follow eventually. We are prepared for that, however it is very clear to me, as an agent and advisor, that the process of buying a property is changing and it is, in my opinion, very long overdue. We as a country are currently, circa the 40th hardest country to buy a property in the world! Time for a change.
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Bryan Good ambassador and taking the trouble to respond to reservations .
What are deemed to be legitimate reasons/excuses to walk away’.without paying a penalty. Due diligence is an ongoing process
Neighbourly disputes
Incidence of reported crime
Planning applications in vicinty
Inablity to get on doctors dentists and schools lists
Buyer of 3rd party property renegotiates deal
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Hillofwad71,
I would be happy for you to take a look at our agreement if you wanted. Neibourly disputes would be applicable if the seller had chosen, through their PIQ (which we do online at the listing stage) not to have disclosed. Basically anything that makes the title not good or marketable. Planning applications would be shown via the searches we provide prior to the agreement being signed. Buyer of 3rd party renegotiates the deal, our agreement does not penalise anything that can be agreed with mutual consent. In all cases we have an abortration service that will resolve the unresolvable!
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Sounds interesting, and the industry needs to simplify transactions, but there are still subjective factors that will cause confusion. What is a ‘bad survey’? If I am selling a doer-upper, the buyer should be expecting lots of issues to be raised by the survey. Is it ‘bad’ if the consumer unit needs upgrading or if the chimney breast has been removed without supports? If adjudication doesn’t work, who decides if the buyer has a legitimate reason for withdrawing? How many times has your contract been tested in court?
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eastlondonagent
Good point, our agreement works on the basis that the property ‘values up’ or can be renegotiated if necessary. In the case you mention above there would two courses of action. In all cases there is a 14 day cooling off period, with an additional 7 days in the case of a mortgage buyer.
1. In the case of a ‘doer-upper’ I would delay the signing of the RA until the building survey results were out, as even in the case where there is work, if the property values up under our agreement then the buyer is liable if they cannot re-negotiate and withdraw.
2. If the RA was signed and the issues were raised in the mortgage survey, and a retention / condition that affected the mortgage offer being issued was raised, then this would enable the buyer to withdraw without liability if the parties could not agree.
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“Research from Rightmove suggests that a five-link chain means that there’s a 50% chance of sales falling through.”
How do Rightmove know how many people are involved in the chains I set up…? Where is this research conducted and how?
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That information was passed to us via Propertymark following a conversation with Rightmove.
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Why complicate a system that works, is it perfect, no but the more you tinker the more likely it is to break.
Surely easier to the following – purchaser will need a loan in place not an AIP a physical loan up to an agreed amount before they can make an offer, once the offer is agreed all parties are notified in writing and solicitors are instructed. They the have 14 days to have the survey and for any renegotiation to conducted if needed. At the end of the 14 days the offer is then reconfirmed in writing and job, seller committed to sell, buyer committed to buy. obviously there would need to be some get out clauses but in essence house is bough and sold.
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in all honesty Simon6608, I would prefer to use the Gazeal system. Why would you want to ask the buyer to get a loan out which could and probably will affect their ability to raise mortgage finance under affordability criteria? In your case the seller is not protected. How are you offering protection to both parties? apologies but as I have stated, I am backing Gazeal 100%
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How do Gazeal make money. £75 here and there isnt going to bring in much? Do people taking out this policy have to use your recommended solicitor or other ancillary product or service?
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ArthurHouse02 As the article states, we take a £250 payment only on completion should the sale go through. This is taken as disbursements from either sides conveyancer. We have no interest and therefore no payment for any conveyancer referral, in fact we prefer that the agent maintains their own relationship. No sale No fee.
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1. I have said for a long time that the Gazeal product is a dogs breakfast… nice to see Gazeal acknowledge that at last, although version 2 is not much better
2. Gazeal just introduces another snout in the trough
3. Have Gazeal or the Government bothered to look at what is happening in Scotland and how their process is unravelling? The public want their cake and eat it…
4. If the Government ever mandated Reservation Agreements (unlikely), we would see a simple, industry wide agreement, like the Standard Contract of Sale that Conveyancer’s are meant to use unedited. No need for a Gazeal solution.
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You have said for a long time?
who are you then? maybe people might acknowledge that you have said it! I can’t see any mention or admission from Gazeal that it was a ‘dogs breakfast’ At least someone is trying to do something about the ridiculous time that most sales take. Relax
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Fairfax87
i would welcome you adding some substance to your rather aggressive comments. Perhaps you could share why you believe it’s a ‘dogs breakfast’ with the audience. Having worked specifically in the agency sector for some time and played a major part in helping establish a service that benefits those involved I couldn’t disagree with you more strongly. I would welcome the opportunity to share our system and agreements with you to help your understanding of what we are trying to do here. Contact me directly at
Bryan.mansell@gazeal.co.uk
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Classy response Mr Mansell as always. A lesson to many about rising above the negativity from people who often have an opinion that nobody cares about
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Thank you RedRebel some people I guess are just resistant to change. Disappointing that some professionals make comments without the full facts to back up their views. But that I guess is what freedom of speech is all about. Everyone is entitled to their opinions. I just wish when they do they have the confidence to do so under their real identity. Can’t please everyone.
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I am constantly perplexed by my own industry. Or perhaps society? Or perhaps just some individuals?
I read PIE just about every day, because I am genuinely interested in changes, innovation and news in my industry.
What surprises me is the unbelievable amount of “keyboard warriors” who pop in their ‘ten pence worth’ often with blatant disregard for any facts, any research or any balanced debate.
There are some REALLY unprofessional people out there, and it saddens me as a young person in the industry. Do not get me wrong – debate, healthy debate – is a very powerful thing. Constructive conflict can actual be credited with some of the most significant advancements in the last century in everything from medicine to tech!
What was it Henry Ford said – “if I had of asked the people what they want they would have said a faster horse!”
Such a shame the occasional “know it alls” come wading in on PIE so often with incoherent babble that is unfounded. Or perhaps I did read “dogs breakfast” as a definitive analysis in a recent HBR article!! Who knows!
Think everyone should have to use their actual names on here! Would be so much better!
Leave the idiots on Twitter!
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