The scourge of ‘gazumping’, has finally elicited a response from the authorities, thanks in part to the inability of an already uncertain housing market to shake it off, as property sellers seek to wring every last drop of value out of their houses.
Reaching the final stages of a purchase can take months and cost thousands of pounds, so the reality of gazumping, when the buyer is informed the seller has received and accepted a last-minute better offer, is not just traumatic, but an infuriating waste of time and money.
However, there is currently no legal protection from the act of gazumping. And sadly, many prospective home buyers act is if gazumping is simply something they have to put up with, perhaps believing they would do it if they found the perfect house, sold subject to contract.
Figure it out
According to research carried out by the Department for Business, 66% of sellers and 70% of buyers, even after an offer has been accepted, still operate on the assumption that the sale isn’t going to go through to completion.
When the majority of people in the market operate on the assumption that the largest and most important purchase they are ever likely to make is going to fall through at the last minute, then the decision to even begin making that purchase is surely bound to be delayed.
The number of purchases involving gazumping dropped from 36% in 2017 to around 25% in 2018, with regional variations highlighting the figure for London was an astonishing 66%. According to the government’s own figures, gazumping sucks an estimated £270 million annually from the UK housing market.
Not a BREXIT issue, but most other European countries have sought to deal with the risk of gazumping by introducing reservation agreements.
In fact, the same Department of Business statistics found that 70% of sellers and 50% of buyers would consider entering into a legally binding contract in the form of a reservation agreement, if the option were available in the UK.
The government finally seems to have decided that something needs to be done about this intolerable situation.
At a recent law industry conference, government representative Matt Prior, of the Ministry of Housing, Communities and Local Government, said a timetable for the introduction of reservation agreements was now in place, with a trial set to take place between January and March 2020.
Under the details of the scheme, buyers and sellers would be asked to put down a deposit of between £500 and £1000 before the offer process is entered into. If either party backs out of an agreement once an offer has been made and accepted, then they would forfeit this amount.
Although the details will likely be finalised during the pilot period, any reservation agreement would almost certainly consist of a contract stating the buyer reserves the right to purchase a property within a specified time period, whilst the seller will not sell to a third party during that period.
If the sale goes through, then the deposit paid by the buyer on entering the reservation period will presumably be deducted from the deposit paid when contracts are exchanged. If the seller backs out, on the other hand, they will forfeit the money they put down when entering the reservation agreement.
This last detail is one that some critics point out as being a major flaw in the working of the government’s proposals.
The devil’s in the detail
If you’re a seller who has entered into a reservation agreement and then receive an offer for your property which is £15,000 better than the offer you’ve already accepted, is the risk of losing your £1000 reservation agreement fee really going to make you think twice?
It’s also been pointed out that any agreement will have to be worded in a manner which takes account of sales which fall through for genuine reasons – bereavement or job loss for example – and that some estate agents are already choosing to voluntarily operate a version of this concept.
On the face of it, reservation agreements surely have to be welcomed as a step in the right direction. Anything which can bring a degree of certainty to the period between an offer being accepted and contracts being exchanged will surely help buyers and sellers sleep better, whilst giving the market as a whole a boost.
If you’re considering buying or selling your home and would like to discuss the process with a well-informed property professional, please contact Ansons’ Head of Residential Conveyancing Julie Tomasik on 0121 716 3732 or email firstname.lastname@example.org