The government is considering introducing “reservation agreements“ which will mean that gazumping will become more difficult.
Gazumping Happens when the seller of a property accepts A higher offer during the sale process. Under the system that we at present have that is always possible since buyer and seller are not committed to the transaction until contracts are exchanged. This means that one party can always withdraw up to that point.
Understandably that possibility will cause a great deal of stress. Both parties run the risk that the transaction could be lost and money spent will be wasted.
The way round this it is suggested would be a reservation agreement. A fee would be paid to reserve the property by the buyer. Such a reservation fee is normal on a new build Conveyancing.However hitherto it has not generally been used in property transactions which do not involve newbuild.
It is suggested that this system could work in the following way. A reservation agreement would be signed by both parties and a deposit paid. At the moment it is not clear As to how much that deposit might be. There have been suggestions that it might be £500. Campions Solicitors Believe that any higher figure might be too much and made Deter buyers, particularly first-time buyers.That would be £500 for each party in the transaction since the seller would also have to pay.
If either party pulled out for an unacceptable reason Then that party would forfeit their part of the deposit to the other party. Campions solicitors think that that raises an immediate issue which could lead to disputes. How will an unacceptable reason be defined. If there are disputes then how will those dispute Be resolved. They would have to be an arbitration process and that might not be cheap. Given the sums involved the costs of dealing with disputes might rapidly outweigh The Sums involved.
There is a further difficulty. Is this to be a compulsory scheme or not? If not will it actually be used. Buyers May prefer a property which does not have such an agreement. They may not wish to pay the costs even though it is less likely that they will be gazumped.
There will be costs inevitably of setting up this agreement to both buyer and seller. Will the parties to be prepared to pay those costs?
Finally how much of a deterrent is this to the seller. Campions can see that many buyers will not wish to lose a reservation fee. However if a seller does obtain a much better offer will they really be deterred by the loss of their deposit.
Campion‘s solicitors therefore remain sceptical about this new scheme.
Campions act on all residential property transactions. Campions Act for first time buyers and offer a first time buyer discount on fees.