The government may begin trialling reservation agreements next year in an effort to streamline the house buying and selling process.
Currently an estimated 33% of property sales fall through. The government has been researching the merits of introducing reservation agreements in England and Wales in the hope of boosting the housing market.
If reservation agreements were introduced, purchasers and sellers would be tied into a transaction once a sale price had been settled. A reservation agreement may include (1) a reservation fee, (2) an agreed purchase price, and (3) the length of the validity of the agreement.
Reservation agreements are currently commonplace in the sale of brand new houses: the buyer pays the developer a non-refundable reservation fee to secure the property, which they forfeit if they fail to exchange contracts and complete the sale within a specified time frame.
By rolling out reservation agreements to all property transactions, it is hoped the process of moving home will be more secure by reducing gazumping (ie a third party making a higher offer than the offer already accepted by a seller) and gazundering (ie a buyer lowering their offer, often just before exchange of contracts).
However, although reservation agreements could potentially reduce a protracted home moving process (at present it is estimated to take approximately 20 weeks), it is unclear whether a reservation agreement would negatively impact buyers and sellers who are caught in circumstances outside their control – for example, a chain.
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