Movements are being made by the Government to remove the possibility of gazumping by encouraging the agreement of a reservation.
This call for voluntary reservation agreements has prompted more definite action from companies such as Gazeal, the property technology business. They have introduced a legally binding contract for buyers and sellers to sign at the beginning stage of the sales process. They claim that this has been extremely effective, with none of the sales using the system falling through, in comparison to the estimated industry average of over 33%.
The idea of a property market without the possibility of being gazumped is a positive one. To install confidence in the individual looking to invest might help to stabilise the entire purchase process. Smoothing out the bumps in the chain of property buying could potentially result in much speedier transactions, and a massive reduction in the fees being thrown into the big black hole of attempted purchases.
As it currently stands, these failed transactions result in £270m per annum of lost fees and disbursements. It is a stressful situation for all buyers and sellers, but in particular it makes it that much harder for first-time buyers to step onto the initial rung of the property ladder.
Duncan Samuel, Managing Director of Gazeal, said: “Our research shows that the cost per failed transaction per household is over £1,000 on average and this can be totally avoided by using our legally binding agreement – Gazeal Seal – which has saved our clients so much heartache and money. Research points to 57% of homeowners who have experienced being gazumped. Our process cuts it out.
“The Government seems determined to improve the housing transaction process and we fully support that. However, Gazeal’s system goes further – even removing the Caveat Emptor (buyer beware) rule in that we guarantee the title on house purchases. Under the existing system buyers or their solicitors have to check the title to ensure its ‘good’. We insure that risk.”
Options like Gazeal may be worth taking a closer look at. It could help to bring peace of mind by providing an assurance that a sale or purchase is contracted. There is a 14 day cooling off period, so both parties have a last chance to revaluate the situation if needs be. This allows buyers to change their mind and ask for the return of the deposit.
Will Reservation Agreements Prevent Buyers from being Gazumped?
Buyers will also be required to provide proof of mortgage funding, ensuring that they have an agreement with a lender. After the cooling off period has passed, there is a full commitment to an exchange of contracts. It is still vital that buyers get a survey done on the house, in order to confirm the property is of an acceptable and expected condition.
It is up to the seller to be pre-emptive and contact a company such as Gazeal to make the property ‘Exchange Ready’, as soon as it is listed for sale. The business claim that their process “typically reduces transaction times from 77+ days to around 35 days.”
Duncan Samuel adds: “Over 65% of all buyers and sellers are rightly worried they will not make it to completion following an offer being accepted. We have a system in place, which is working to both speed up the process and to ensure that transactions do not fall-through.
“This week we have been invited by The Ministry of Housing, Communities and Local Government to work with them to improve what is a broken system. We are proving that this can be done and deserves to be rolled out across the UK’s housing market.”
With the amount of savings being lost by house buyers due to the lack of prevention options, we are interested to see how such contracts take off in the future. The only matter to consider as the buyer and the seller is whether it is worth the extra fee. Gazeal require £250 from the seller, which is paid after completion of the sale, and £250 from the buyer, which is paid after an offer has been accepted. There is also a 1% reservation fee, which is held against the 10% contractual deposit.
With this information in mind, would you consider arranging a reservation agreement when selling a property? Do you believe that perhaps they should be included as standard as part of the property buying process?