Anyone responsible for a property purchase falling through should have to pay £1,000 to the other side if they pull out.
The call has come from the HomeOwners Alliance, which says that fall-throughs are costing buyers and sellers over £500m a year.
It is proposing a £1,000 reservation agreement – a legally binding bond paid by both the buyer and seller and held by their own solicitor – in answer to the Government’s latest call for evidence into the home buying and selling process.
The organisation is also calling for estate agents to publish fuller particulars of sale for a property at the time it is listed.
The organisation claims that providing the TA6 particulars of sale form earlier, as well as introducing a reservation agreement, would iron out any problems earlier and speed up the process.
The HOA said: “Sellers will have to fill out TA6, the standard property information form which includes all material information such as length of lease and ground rent if leasehold, before the reservation agreement.
“This is simply good practice, and there is no reason they cannot do this before putting their house on the market and the estate agent can provide it to the buyer, and the estate agent can then provide those details to the seller before they make an offer.”
If a prospective buyer then decides to make an offer, a refundable reservation agreement would need to be paid by both sides to their respective solicitor.
Here is how the HOA proposes a reservation agreement would work:
– Before the reservation agreement, the buyer will need proof of funds such as a mortgage in principle. In the reservation agreement, the buyer’s solicitor will confirm to the seller’s solicitor that the buyer has sufficient funds.
– Both sides agree to pay the other side £1,000 if they pull out of the transaction for any reason.
– Both pay their conveyancer/solicitor a repayable £1,000 bond to cover the payment if they do pull out.
– If any previously undeclared material issues emerge during the surveys and searches that potentially affect the value of the property by more than 1%, then either side has the right to renegotiate. If they can’t agree a change of price, then the side that is detrimentally impacted will have the right to pull out without losing their £1,000 bond.
– If either side breaches their commitment to being a “genuine” seller or buyer – such as by putting the property back on the market, accepting a higher offer from another buyer, or the buyer putting in a lower offer after the sale price agreed, then they will be deemed to have pulled out of the transaction, and are liable to pay the other side the £1,000. If either side pulls out over matters that are financially less than 1% of the value of the property (eg over whether a cooker is included) they will be liable to pay the other side £1,000.
– If either side is worried about being able to afford the £1,000, they can take out home buyers/sellers insurance.
– There would need to be a backstop date for completion of the purchase, say three months after the reservation letter. If both sides want to continue with the transaction, they can agree to extend the deadline, but if one side has failed to meet their requirements, then they will be deemed to have pulled out, and have to pay the other side £1,000.
– Interpretation of a fall-through and any disputes should be covered by standard industry guidance, or failing agreement between the conveyancers, by the Property Ombudsman or the small claims court.
– Only those that cause the collapse of the chain will have to pay and will pay £2,000 if they are both buying and selling and pull out of both transactions at the same time.
The consumer group estimates consumers waste £500m a year on failed attempts to buy and sell properties.
It come to this figure using the Government’s call for evidence on the home buying process that claimed – without a source – that failed transactions cost on average between £695 and £744 for buyers, and £582 and £740 for sellers.
There were 1.24m property transactions last year according to the ONS, which the analysis then multiplies by 28%, which is the estimate of fall throughs by property buyer Quick Move Now.
This comes to 344,000.
It then adds the £744 and £740 figure to give a cost of £1,484 for both sides of a sale. This figure is then multiplied by the £344,000 to give an estimated sum of £511m wasted per year.
Paula Higgins, chief executive of the HOA, said: “This is the true cost of the UK’s not-fit-for-purpose home selling and buying system – home owners losing more than £500m down the drain every year.
“It is no surprise that some parts of the property industry have too often resisted previous government attempts at reform – this is extra business for them.”
These HOA proposals are idealistic, utterly impractical, and totally unworkable.
They demonstrate that the HOA has very little understanding of the homebuying and selling process. And even less understanding of human behaviours.
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You certainly can’t accuse HOA of ever letting; reality, knowledge or experience get in the way of taking the oportunity to put out a press release.
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Really, sounds like they’ve described auctions to me. They seem to work every day of the week?! Im interested, which bit don’t you think works?
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The majority of auction properties are vacant at the date of the auction and most buyers are cash. That is completely the opposite to most private treaty sales and totally alters the sales process.
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And chain-free of course.
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Such a daft idea, really! I agree with AgencyInsider.
1. this £1,000 arrangement has nothing to do with conveyancers, nothing at all (as can you imagine the extra legal work is arbitrating over the obvious ‘i dont’ agree to lose my £1,000′ nonsense) this is an idea to help estate agents better perform their role of securing a sale.
2. of the fall throughs we see, it is almost always down to improper vetting of the buyer. e.g their mortgage cannot be secured, they have a ‘change of heart’ (i.e they were never serious anyway, which was obvious, they can’t find a seller for their own property etc etc , The Agent was just too excited to have just found any buyer – with estate agents cutting each others throats over commision rates, partly understandable – and so any buyer is considered worth having
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Twitter I can’t agree.
Many agents currently take deposits from tenants prior to commencing referencing. Only last month I had to pay a £500 non refundable fee to rent a new property despite me offering to pay the first six months in advance. So the admin and infrastructure already exist. Especially where the agent has a lettings department.
Your points in 2 highlight the reasons why we need some “skin the game”.
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The idea is a good one but these guys have no understanding of how to present or any idea how the buying and selling process works.
It just needs someone with much better knowledge to find a way to make this principle work. I like the idea of a £1,000 fee for both. In the old days we help £100 deposits but gave up on them when we started to have to calculate and pay interest on the money.
The fact is that we should and could provide more sensible in formation up front. It is foolish to try to sell leasehold properties without providing full details of the lease, ground rent and maintenance.
This is probably a good idea, just very poorly presented.
Sales will ALWAYS fall through. Some for very good reasons, some as a result of stupidity. Get over it! The better agents are the ones who get over the former and work to avoid the latter.
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They already do this in some states in Australia and there they only have 2% fall through compared to our 30%+. Just saying!
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Can you provide a source for that claim please.
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Deposits likely need to be held by a third party.
Deposit amounts should be more relative to a % of the transaction price. Plus there meeds to be ‘subject to’ unforeseen instances where i) things may not have been disclosed, or ii) things come to light.
In the event of sale collapse there needs to be a mechanism for the deposit to be fast returned, or passed over (whichever be the case).
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Wouldn’t it be a good idea if instead of one group pointing the finger at other groups in some sort of multi-party gunfight that each group looked at:
1how they work;
2 how that can be approved;
3 what actually prevents completion;
4 if that can be eradicated without affecting the overall process.
It may be we have to accept that the process is what it is.
More should be done to provide information upfront given how long it can take to obtain Searches.
There must be greater understanding across all groups of how the process actually works so all parties can give an informed and realistic opinion to potential buyers of the process. Too much frustration is created by buyers believing it can all be wrapped up in 4 weeks. It doesnt help if a Seller doesnt look for a new home until they get an offer.
Binding offers is a great idea in theory but I suspect that identifying time wasters early on is a better solution. How could that be done?
If anyone wants a free First Time Buyer guide then email felicity@emmersons-solicitors.co.uk
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Like most conveyancing firms, BLG members would like to see a reduction in the number of abortive transactions. They might be seen as “extra business” but extra business they could do without.
The introduction of a Reservation Agreement might be one way to make home buying and selling less stressful and more certain. However, the devil will be in the detail. For example, not everyone wants a quick transaction and there will be times when buyers and sellers will want, and will need to change their minds. For example a sudden job loss or even a death.
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HomeOwners Alliance, what if a buyer withdraws because of an adverse survey of the property, e.g. there’s subsidence, or the property is downvalued? Do you think they should still pay £1,000 compensation to the Seller on top of covering their own costs (survey fee, mortgage application/broker fees, conveyancing fees, etc).
What if the Seller is not cash rich and does not have £1,000 to lodge with their solicitor? What if the Seller is a repossession company?
And what’s all this from Paula Higgins?:
“It is no surprise that some parts of the property industry have too often resisted previous government attempts at reform – this is extra business for them.”
Whether the buyer/vendor pays compensation to the other side or not, any third parties still gets paid for the work they have carried out…
However, I agree it is good practise to get as much property information as possible from the outset and I too have suggested to my colleagues that they ask vendors to complete a TA6 (or a version of it) at instruction.
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Did you even read the article?
If material changes after a survey affect the price by over 1% the buyer can pull out with no punishment.
Insurance covers the £1,000 if they don’t have the cash.
If the seller is a reposession company they pay £1,000 – it’s not difficult to understand. The only way that they could then lose that £1,000 is if they don’t uphold their end of the agreement.
Change needs to happen. This isn’t the worst idea in the world and ensures that both parties have a financial punishment for pulling out whilst enabling those with an open and honest approach to the process to negotiate for time if required. It’s simple but effective. Good luck working out those details though!
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Good afternoon, Observer
“If the seller is a reposession company they pay £1,000 – it’s not difficult to understand. The only way that they could then lose that £1,000 is if they don’t uphold their end of the agreement.”
Help me out on this one, please.
CML Statement of Practice document states
When selling properties which have been taken into possession lenders are under a duty to obtain the best price reasonably obtainable..
If a higher, proceedable, offer than that previously accepted is received up to the point of exchange of Contracts then they are required to accept it or request the existing purchaser meets/exceeds it.
Their Legal obligation therefore overrides the above and no such agreement could be put in place for such transactions.
Other forms of ‘distressed sale’, Court of Protection cases, Deceased Estates, Bankruptcies etc will be in the same room.
Then of course you have the Agent’s obligation to every vendor under The Estate Agents Act 1979 to act in their best interests; to put forward all and every offer to purchase…
If sellers and/or buyers want to deal by transaction of this suggested format, there are, as has been said, Auctions.
Why, then, should the whole Private Treaty model be turned on it’s @r$£ when the vehicle is already there, fuelled up and ready to roll?
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“In the reservation agreement, the buyer’s solicitor will confirm to the seller’s solicitor that the buyer has sufficient funds.”
How?
AIP means bot-all. The Applicant spurts a few figures out to the Adviser, lets them check they have a pulse – and out churns their magic Certificate that they can buy a mansionette with their minimum wage.
Money in bank? So what? Var-nigh twenty years ago I dealt with the sale of a property to a pro footballer whose missus reportedly ‘spent’ their deposit – TWENTY EIGHT GRAND – between 5pm Friday and 9am Monday and the sale couldn’t exchange until he got paid again.
A bank statement is like an MOT – only good when it is issued.
Someone hasn’t thought this through.
“If any previously undeclared material issues emerge during the surveys and searches that potentially affect the value of the property by more than 1%, then either side has the right to renegotiate.”
Who puts the “value” on the effect that these material issues have on the property? What if the effect is POSITIVE rather than negative?
Someone hasn’t thought this through.
“If they can’t agree a change of price, then the side that is detrimentally impacted will have the right to pull out without losing their £1,000 bond.”
BOTH SIDES are “detrimentally impacted” by a material change of price.
Someone hasn’t thought this through.
“Only those that cause the collapse of the chain will have to pay and will pay £2,000 if they are both buying and selling and pull out of both transactions at the same time.”
WHAT??
So – apart from two or possibly three links whose costs for that part of the transaction may be part-covered, the rest of the chain get far call (think about it…)?
Someone hasn’t thought this through.
A £1000 “reservation agreement” is a huge amount to some sellers & buyers – and could be several percent of the value of their sale/purchase – but to squillionaires who are moving from one mansionette to another, grander gaff it’s mere pocket change and doesn’t even register until you drop to three or even four decimal places on impact vs. value scale.
Someone hasn’t thought this through.
There’s a common thread of running through these issues – and I’ve only picked the easy-peasy ones for starters.
No prizes for spotting it, though.
I would suggest that, including all those above and below my paltry offering, the most apt comment possible to this ‘news’ has been Tweeted by Paul Reynolds of Renown Estate Agents in Northumberland, which I have great pleasure in mounting here for all to see:
“Too many stupid ideas kicking around from Government down. All magic wands should be handed in and destroyed.”
Ros – PLEASE make this Comment of the Week.
EVERY week.
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PeeBee – for the sake of the greater good please post your precient points here: homebuyingandselling@communities.gsi.gov.uk or here: https://www.surveymonkey.co.uk/r/homebuyingandselling
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Prescient points?
Blimey! When did I start making them?
When, for that matter, did I start making any points at all?
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