EXCLUSIVE: Demand for deposit to secure sale sparks big debate
Reservation agreements are increasingly being used to reduce fall-throughs and secure transactions in tougher market conditions, says Propertymark.
Questions have been raised about the growing use of reservation agreements after a first-time buyer was allegedly asked to pay £2,000 before a property would be taken off the market following an accepted offer.
The claims, which appeared in a LinkedIn post by Mortgage and Protection Adviser, Stephen Dumont, sparked a wider industry debate about the fairness and transparency of upfront buyer payments.
Documents seen by The Neg suggest the payment was structured as a “non-refundable reservation fee” held in a sales client account on behalf of the seller by an unnamed estate agent.
Under the reservation agreement, the fee would be forfeited if the buyer withdrew prior to exchange, although refunded if the seller pulled out. The agreement also states it is not a legally binding contract for sale.
Dumont said the buyer, a first-time purchaser, was already struggling with the cost of deposits, Stamp Duty and legal fees.
A mandatory buyer’s fee’ like this feels like a massive barrier to homeownership.”
He wrote: “I’ve seen a lot in this industry, but a mandatory ‘buyer’s fee’ like this feels like a massive barrier to homeownership.”
Ashley Osborne MRICS, Director of property investment firm AngleBrics, argued on LinkedIn that requiring both sides to commit financially could help reduce collapsed sales and “save everyone wasting time”.
Entrapment mechanisms
Julie West, Specialist Property Solicitor at Julie West Solicitors, however, warned that estate agents are increasingly promoting reservation agreements which risk becoming “entrapment mechanisms” if buyers are tied into deals before legal advice and due diligence have been completed.
Nathan Emerson, Chief Executive of Propertymark, told The Negotiator that reservation agreements are increasingly being explored as a way to reduce fall-throughs and improve transaction security, particularly in tougher market conditions.
“Buyers should always be informed at the earliest opportunity about any non-refundable fees, reservation costs, or conditions attached to an offer being accepted or a property being withdrawn from the market.”
He added that the purpose of the payment, whether it was refundable, and who retained the money, “should all be made explicitly clear in writing before any commitment is made”.
Any agreement, be it a Deposit or Reservation, should be provided upfront before any money changes hands, it should be very clear that the buyer or seller are not liable for any loss if they are unable to exchange due to no fault of theirs, unless they have both personally agreed otherwise.. It should be dealt with by a third party to avoid any bias and written in clear language so the terms are simple to understand and interpret.
As a business that specifically arranges for deposits and reservations agreements to be used, I agree that in all cases where an agreement is used, it should be provided in clear language prior to any money changing hands. It should also be clear that the Buyer is never out of pocket for any failure to exchange due to no fault of theirs. This is the founding principle of Gazeal, to make this fair and reasonable for both parties.
I thought it was against TPO rules to take deposits???