Your bid on a dream home has been accepted, you’re counting down the days until you move in – only for the estate agent to call and break the news that you’ve been gazumped.
The practice – of a buyer with a higher offer swooping in to out-bid you before contracts have been exchanged – is regrettably common in today’s property market, accounting for a third of sales falling through.
Change is on the way, with a raft of major reforms announced recently including mandatory and legally binding sales agreements to prevent either party pulling out without legitimate cause.
This long-awaited protection for buyers and sellers, which mirrors the Scottish system, will not be introduced until the end of 2029, however, but there are steps that you can take to safeguard your interests now.
Reservation agreements
At present, buyers and sellers in England and Wales can withdraw from a transaction at any time between the acceptance of an offer and the exchange of contracts. This differs in Scotland, where the use of reservation agreements is more common.
A reservation agreement (also known as a ‘binding conditional contract’) allows a buyer to reserve the right to buy a property for a specified period of time upon payment of a reservation deposit to the seller. It is a contract between the parties that agrees on the price and terms under which the property will be sold and is used in place of the usual contract on exchange.
The reservation deposit (usually a small fraction of the property purchase price) is then deducted from the ultimate purchase price following a successful sale. If a buyer withdraws from their property purchase after signing a reservation agreement, they will then forfeit the deposit to the seller. The exception to this is if there is reasonable cause, the clauses of which will be specified in the contract’s wording.
There are several benefits to reservation agreements, such as deterring offers from speculative buyers and ensuring anti-money laundering (AML) compliance.
Change on the way
In 2020, the government announced that they would be trialling the use of reservation agreements in two areas. However, the trial was ultimately postponed due to the COVID-19 pandemic.
Reservation agreements then re-emerged as a hot issue when the government unveiled its home buying and selling consultation last year. The government invited responses from interested parties on the topic (among others within the consultation more broadly), asking four questions, including whether the most effective means of introducing them could be incentivising estate agents to offer reservation agreements as a service, raising consumer awareness or legislating their use.
Whilst we have yet to see the detail of how these binding agreements will work in practice, it is a welcome step towards better protection for consumers.
Other changes include making important information about the property, such as its condition, leasehold costs, and chain status, available to buyers much earlier in the process via ‘sales packs’.
A new code of practice will also be introduced for estate agents to help raise standards.
The government says the reforms, many of which those in the industry have long been campaigning for, will save buyers an average of £650.
Transparency and other concerns
Future home buyers are set to benefit, but reservation agreements are the next best thing for those looking to purchase a property now.
Until binding agreements become mandatory in 2029, reservation agreements can be drawn up by a conveyancer if both parties are on board.
For reservation agreements to be viable, however, relevant information underpinning the purchase must be available at an early stage to enable the buyer to enter an agreement with confidence.
The CLC encourages engaging and working with a licensed conveyancer to ensure that a reservation agreement is drafted with clear and fair terms about prescribed exceptions (e.g. sudden job loss, divorce, the deliberation provision of misleading information) and how they will operate if any of those clauses are engaged.
Practices regulated by the CLC will have our badge prominently displayed on their website which, when clicked on, will take you to our site and confirm that the firm is genuinely regulated by us.
You can find a list of CLC-regulated conveyancers, as well as more guidance on buying and selling property, here.
Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancers