Today, certainty can seem in very short supply and it therefore makes sense that when it comes to the homebuying process, there is a growing urge to deliver far greater certainty for all stakeholders.
Currently, the process is something of a ‘free for all’ – by that, I mean at any point in the process, the whole transaction can fall through at a drop of a hat, meaning a considerable amount of money, time and resource is lost with no-one able to do anything about it.
Your buyer pulls out because they decide they now don’t like the property? Tough. The seller decides they actually don’t want to move now? Tough. The buyer assumed they could get the requisite mortgage but now they can’t? Tough. And that’s without even thinking about what might happen within a chain which is completely out of the hands of those who are involved in other related transactions.
Regardless of how far you are along the process, until that point where contracts are exchanged, there is no recourse at all for those that have been most deeply impacted. The financial loss can be bad enough, but it’s perhaps the emotional loss that’s the worst to contend with, especially if you were a long way towards a purchase and it’s suddenly taken away from you. If it’s happened more than once to your clients, you won’t need me to tell you about the anguish this can cause.
It’s therefore not surprising that the government might wish to take action on this. The average purchase takes 20 weeks to complete, and the financial loss with any aborted transaction can run into thousands of wasted pounds. There has to be a better and quicker way that ensures the chances of sales falling through are greatly reduced, or at the very least, that they do not mean a financial loss for those who are impacted but have done nothing wrong.
It would seem that the government’s answer to this is going to be a combination of measures – perhaps most interestingly is the introduction of a reservation agreement, already widely used when it comes to new-build. Recent media reports this month suggest that a trial will be taking place early next year with a number of estate agents and conveyancers taking part.
The government want to use reservation agreements to lock parties into a transaction far earlier in the process and to do this it looks like they will be requiring them to put forward a certain amount of money which is likely to be handed over to the other party should they pull out. There will be some admissible reasons why a party might not have to pay this financial penalty by pulling out which include bereavement, losing a job, the property not being mortgageable but the idea is clearly to use these agreements to tie them into the transaction. In other words, once you commit, you will lose out if you pull out.
Alongside this is a focus on the provision of upfront information to prospective buyers from the sellers, because one of the main causes of people pulling out of a transaction is they find out about things further down the line which they did not know when they put in their initial offer. The government’s view is that much better and more complete provision of property information, perhaps through a Property Log Book, will mean the prospective purchaser is able to proceed having a much fuller picture of the property and what they are actually purchasing.
Overall, this appears to be a positive move because, as a significant player in this market, we know only too well how many purchases never make it to exchange/completion, and it’s fair to say that the ability to pull out (sometimes on a whim) is not helpful to anyone. We understand that some stakeholders might think this is going to stop properties being put up for sale, or ‘through the door’ purchasers moving for a property in a short space of time, but the view surely has to be that delivering greater certainty for all players is a much better situation than what we have now.
We’ll be looking at the pilot results with great interest, and how the provision of upfront information progresses, because there appears to be an opportunity here to secure a much more stable home-buying process that could benefit all of us.
Mark Snape is managing director of Broker Conveyancing