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Angela Arnold

Partner - Brighton & Hove

8th November 2019

Home reservation agreements: An end to gazumping and gazundering?

Under Government plans in early 2020, home reservation agreements will be trialled in England. Currently, no property transaction is guaranteed until the contracts are exchanged, which can take some time. Home buyers and sellers can pull out of a deal at any point, causing stress and wasted money.

Reservation agreements

A home reservation agreement would mean that both the buyer and/or seller would put down a deposit at the start of a transaction and make an agreement for a set period of time. If one party decides to walk away during that time for a reason not deemed acceptable in the agreement, they would lose their deposit and the side that stuck to the deal would get some money back.

The agreements would have to be well considered and carefully drafted. They should specify what reasons are acceptable for withdrawing from the deal, for example structural problems discovered during the survey, or a job loss or other financial problem. Unacceptable reasons could include gazumping or gazundering.

What is gazumping / gazundering?

Gazumping means that a seller has accepted a higher offer from a different buyer, meaning that the original buyer loses the deal.

Gazundering means that a buyer gives a much lower offer at the last minute The seller then has to decide whether to accept this offer and lose money, or lose the sale completely.

Would reservation agreements help buyers and sellers?

Reservation agreements may reduce the number of property transactions falling through. They could also help to alleviate the stress that buyers and sellers experience by providing confidence that the transaction will take place.

However, there is no guarantee. Would a reservation agreement stop a seller from accepting a higher offer, if that higher offer outweighs the deposit?

Whilst it’s too early to say the effect that they might have on the residential property market, some estate agents are already using them as standard practice. They report that sales rarely fall through and transactions go through faster as a result. The system is slightly different in Scotland, where all parties commit to a sale once an offer is accepted.

If you would like any other information about reservation agreements or residential property matters, please contact:

Angela Arnold
Partner, Head of Residential Property
T. 01273 766958
E. angelaarnold@rixandkay.co.uk

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