It’s been reported that homebuyers are being pressured into handing over £1,000 to estate agents in so-called reservation fees.
A new change in The Property Ombudsman code of conduct in England and Wales now allows estate agents to ask for a controversial ‘pre-contract deposit’.
The payment is supposed to act as a guarantee to the seller, confirming the buyers intent to move the process forward. They’re not always non-refundable, some agencies are allegedly offering reimbursement of the fee following a collapsed deal, dependent on the contracts terms. The ‘reservation fee’ is wholly justified by some estate agents, who claim they are now vital to ensure buyers are serious about their purchase.
To help persuade clients on the idea, agents are said to be pointing to the well-being potential buyers experience when they know they can’t be gazumped at the last minute in what is still a competitive London housing market.
Issues have arisen when homebuyers ask for their fee returned after structural problems have been found inside the property.
This was the case for a couple who paid £900 to reserve a property with Property Link; after a survey on the home it was revealed the house needed thousands of pounds worth of repairs so the pair promptly withdrew their offer. Thus far the unhappy couple have only received £400 back. Further complaints have been lodged around unclear and fuzzy contract terms and alleged increases in the fee half way through the contract itself.
David Hollingworth, of mortgage broker London & Country, said, “we’ve had customers come to us who have been asked to hand over thousands of pounds to take a property off the market – and it’s increasing. There are so many things that can go wrong and cause a sale to collapse.”
The Property Ombudsman has argued that this change was created to aid the relationship between seller and buyer, injecting further confidence into the process and ensuring a smoother sale with fewer gazumptions or withdrawals.
A spokesman for the ombudsman said, “Done properly, a pre-contract deposit has the potential to give a buyer and a seller the confidence that the transaction is likely to complete.”
DMZ thinks efforts should be made to protect home buyers who are close to finalising their property purchase from higher bidders. However, creating a sub-market of pre-contractual agreements seems to be causing confusion with agents on what is and isn’t expected of them. The ombudsman needs to clarify exactly what the law is, providing examples of pre-contracts and their limitations.
The last thing agents need is an option to offer clients that isn’t transparent to all parties involved. With the potential to damage relationships DMZ would urge agents to tread carefully in what could be a client (and PR) minefield.