Those already using reservation agreements say they are improving the home-buying process, it has been claimed, although the public and industry are split on whether they will work.
The Ministry of Housing, Communities and Local Government (MHCLG) is still to announce whether it will approve a trial of the agreements, which both seller and buyer would sign after an offer is accepted.
An update from the Home Buying and Selling Group – a cross-industry stakeholder body advising the MHCLG – said its working group’s initial recommendation was that the agreement would be conditional upon the information available at the point of acceptance of offer and the buyer and seller’s circumstances.
Both parties would be expected to pay a “commitment deposit”, which they may lose if they breach the terms of the agreement. Any deposit monies paid would be protected by an arbitration process.
The group acknowledged that “the industry and indeed consumers appear to be split on whether reservation agreements will be successful”.
But it added: “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.”
It said two companies – Gazeal and Honesty Box – were providing upfront legal packs which included a legally binding agreement which meant buyers could not ‘walk away’, nor could purchasers ‘gazunder’ the buyer later in the process.
The update said there were still questions to be answered as to whether the agreements could work, however.
“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, [our] 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 MHCLG has commissioned behavioural research to consider ways of encouraging consumers to adopt reservation agreements, and will decide whether to pilot them following the researchers’ recommendations.
Speaking last October, the lead official at the Ministry of Housing Communities and Local Government, Matt Prior, said: “The government doesn’t necessarily think that reservation agreements are the complete answer.
“What we ideally want is a process that takes six to eight weeks to buy a house. There are definitely moves in that direction but you have a process that’s going to take 20 weeks [including the time before the offer], you probably do need some mechanism for binding parties together.”
The civil servant said the culture needed to change if reservation agreements were to work, so that “people feel that it’s not OK to just walk away” – and also that consumers realised they were not powerless to speed up the process.
Mr Prior said the “consensus” at the time was moving towards parties have to commit about £1,000, “more like a charge on a credit card” than an upfront payment.
“People don’t want reservation agreements, but that doesn’t mean they don’t need them,” he said. The agreement will be subject to survey and parties may also be able to extract themselves from it without charge in cases of bereavement and significant changes of circumstances.