30 Oct, 2019/ by Homeward Legal /Buyer, First Time Buyer, Sale & Purchase
Home reservation agreements are to be trialled in England early next year in a bid to end the practices of gazumping and gazundering.
The Government wants to make it harder for buyers and sellers to pull out of a deal to buy a property.
Harder for both parties to pull out
No property transaction is secure in England until contracts are exchanged.
The buyer can withdraw their offer or the seller can change their mind about what's on the table.
That can often leave a deal on a knife edge and open the door to gazumping or gazundering.
Gazumping happens when the seller accepts a different, higher offer and leaves the original bidder out in the cold.
Gazundering is when the buyer lowers their offer at the last minute, leaving the seller in the awkward position of losing the sale altogether or having to accept less money.
Reservation agreement commits both sides
The trial would involve either buyer or seller - or likely both - locking into an agreement to buy by putting money into a separate account held by their conveyancing solicitors.
They could lose that money if they subsequently change their mind about the deal. The other party could consider their reasons for doing so to be unreasonable.
The new proposed reservation agreement would bring England into line with Scotland's system of property buying. In Scotland, both sides are committed to the sale once an offer - even a verbal one - is accepted.
Third of all sales currently collapse
In England, around a third of all property sales collapse every year because one side pulls out.
Developers selling new-build properties already work with reservation agreements. Buyers must put down a deposit, which is non-refundable if they then change their mind about the house.
The reservation agreement trial will attempt to put all property transactions on a similar footing. If successful, the system will be rolled out across the rest of England.