‘Why reservation fees ARE the way forward for property sales’
Expert Tim Main from PiP Vault responds to Nigel Lewis's article on the industry's conveyancing problems within the latest Negotiator magazine.
Nigel Lewis’s excellent article – Negotiator magazine April 2023, tinged with personal experience, Not fit for purpose looks longingly at the French property sales system where a 5% deposit is paid when an offer is accepted.
Sadly, that system relies on property information declared before the sale and we are a long way from that. The HBSG [Home Buying and Selling Group] he refers to have already spent some three years looking at a reservation agreement.
Despite the drafting of one by a highly-regarded King’s Council, Philip Freeman, a standard form that would be acceptable to all parties has not been found. The main difficultly being where blame lies if a deal falls through.
The point I do not agree with Nigel is his comment “I am aware that James Munro from Trading Standards is toying with a £500 offer deposit, but it’s just not enough to prevent silliness, in my view”.
Paltry
I agree as a percentage of the sale price £500 is paltry, but I have always found people, however rich, are very careful about spending their money.
This view is fully supported by some telling research completed by Phil Priest at Four Corners Property Ltd. In a sample of over 200 property sales, the estate agent asked buyers to pay for searches at the point of sale.
If no payment, then the property does not go under offer. Some paid others did not. Those who did not pay took on average 120+ days to completion with a fall through rate of 42%. Those who payed averaged 79 days (41 days quicker) to completion at a fall through rate of ZERO. Which is staggering.
These figures can be debated and zero fall through rate is too low to be maintained, but no one can claim this is not a significant difference.
Getting buyers to put a little ‘skin in the game’, allied to a decent starting position with Searches, seems to work.”
Is this a big change for buyers? No. When a buyer has an offer accepted and receives a Memo of Sale, they are agreeing to appoint a solicitor and put them in funds for the searches.
The fact is some solicitors report a two-week wait to start, with some having a policy of not applying for searches until a mortgage offer is received – with little instruction sought from the client in the meantime. On average solicitors order searches eight weeks after the sale is agreed.
There is always some kick-back from solicitors wanting to order their own searches. This does not seem helpful and where searches have been purchased earlier, buyers should instruct their solicitors to accept them. If your solicitor won’t work in this way – there are plenty out there who will.
The Four Corners trial proves there is a way forward – and it’s simple.
[box type=”shadow” ]Author: Tim Main CEO at PIP Ltd who offer funded searches so the above can be achieved, www.piphome.co.uk[/box]
I started in agency in 1972 and we would not agree a sale and instruct solicitors unless we had a holding deposit, usually of £100 and higher for the larger detached houses. Doesn’t sound like much but the average sale price in my area at the time was around £10,000 so that’s 0.1%. It was, of course refundable if the sale did not go through but its purpose was to focus the buyer’s mind on progressing and on informing us if they decided to withdraw.
There were attempts to make it non-refundable but it was decided that apportionment of blame was just too difficult and the costs in the event of disagreement were too high.
We provide a Buyer Info Pack to interested parties, similar to a draft contract pack, we compile this before launching to market – We also do Reservation Agreements on many of our sales. People want faster more secure sales. Upfront info is a no brainer, as is stopping buyer or seller withdrawing on a whim a day before exchange. The brilliant Gazeal handle all this for us. Need more info? Search for [Upfront property information] or [Secure Reservation Agreements] on our blog at Cooper Adams
At last, some hard stats to make the point. We’ve been saying this for over two years now.
Thank you Tim and bringing to light the exciting work we have done at 4Corners Property.
One thing to mention, by simply ordering them at the start of committed buyer offer, the searches are returned sooner and enquiries raised.
Regards
Phil
4Corners Property
Phil, great work by you and your team. As ever it is a really simple solution that is really effective. Agents can be doing this this afternoon. The effect on their bottom line will soon follow.