Estate agents have questioned whether reservation agreements can reduce failed property transactions unless the government makes them mandatory.
The government has today published research into attitudes towards reservation agreements.
The 51-page report follows a Call for Evidence launched in 2017.
However, the report does not link its findings to the government’s current plans for homebuying reform.
The research does provide an insight into industry attitudes towards reservation agreements.
Estate agents expressed particular scepticism about voluntary agreements.
The report states: “There was a common view, especially amongst estate agents, that a more fundamental change in the market was needed, and that Reservation Agreements were unlikely to have an impact unless they were mandated.”
Agents also questioned how voluntary agreements would work within property chains.
They argued that agreements could have limited impact if other transactions in the chain lacked the same commitment.
Estate agents and solicitors also pointed to the low take-up of existing commercial reservation agreement products.
Researchers also raised questions about incentives within estate agency.
The report states: “Some also felt there was not a strong enough incentive for estate agents to change their behaviour as currently estate agents are incentivised (via bonuses) on properties that are sold subject to contract (STC) rather than on sales that complete.”
Buyers and sellers see benefits
Consumers saw potential benefits from reservation agreements.
They felt agreements could encourage buyers to think more carefully before making an offer.
Consumers also believed agreements could increase commitment and make the transaction process more transparent.
However, buyers and sellers questioned whether reservation agreements would prevent gazumping.
The report states: “However, buyers and sellers felt that Reservation Agreements were unlikely to prevent gazumping, as a seller could easily make up the loss of the deposit on a higher offer.
“As such, Reservation Agreements were seen to function best as a commitment device that introduces friction to either party changing their mind without cause.”
Comments (3)
I disagree that Reservation Agreements will not work unless they are mandatory.
We have used them voluntarily at Cooper Adams since early 2020, and our fall through rate on Reservation Agreement sales has consistently been far lower than sales without one.
What we have also found is that they stop buyers and sellers pulling out for trivial reasons. Once there is a real financial commitment, people think very differently about simply changing their mind, seeing another property, accepting another offer or trying to renegotiate without proper evidence.
They also work perfectly well where the whole chain does not have one. If another part of the chain genuinely collapses, that can be an accepted reason to withdraw.
And the point about gazumping misses something important. Under our agreement the seller agrees not to market the property, consider other offers or accept another offer during the term. It is a mutual financial commitment, not simply a small deposit a seller can choose to lose because someone offered more.
Would making them standard across the whole market make them even more effective? Absolutely.
But saying they cannot work voluntarily simply is not supported by what we have actually seen in the real world over the last six years.
“The appeal of reservation agreements was initially undermined as participants felt it was unrealistic to ask buyers to make a commitment in the absence of key information about the property. As such, they struggled to see at what point in the process such an agreement would be of value: at the offer stage there was felt to be too little information to make a commitment; at the point of exchange commitment was already considered to be in place.”
Agree that more info before offer is important but buyers pull out for any reason they want without one often nothing to do with info before offer