This is about changing the way prices are negotiated on house sales and purchases, in order to reduce cyclical market stagnation.
Having researched the difficulties in housing market transactions taking place over successive booms, I’ve come up with a better way for agents to handle offers received from prospective purchasers. In my opinion, it should be made a requirement for agents to adopt this new method for dealing with all offers, in an effort to stabilise the housing market, and thus bring increased growth and prosperity to the country. Coalition Government please take note.
Instead of taking instructions from their client to accept an offer, which implicitly includes withdrawing the property from the market, agents should do the following.
The vendor should be advised to say “We accept your offer, but instead of taking the property off the market,” say “but until you are ready to actually exchange a contract to purchase, we need to carry on advertising the house as being still available; though we are happy to mark it ‘currently under offer‘.”
Since HIPs were abandoned, the estate agent should be saying (on behalf of the vendor):
“You should aim to exchange contracts as soon as you are able to complete your legal work, including getting a survey right away, if at all possible (and if required), in order to satisfy yourself that you are happy with the condition of the house.”
“Once you have exchanged contracts the house will be removed from the market or alternatively marked as ‘Sold (subject to contract)’.
On completion of the sale, the house will be described as having been sold.”
“Whilst accepting the offer, the vendor agrees to arrange for their solicitor to send the contract for sale to the prospective purchaser but on the understanding that the purchaser undertakes to return this to them, should they at any time up until exchange decide to request this.”
The effect of this new method would be that the acceptance of an offer means the prospective buyers are being accepted by the vendor as the preferred buyers and that they are only ones the vendor’s solicitors will deal with at the present time. In effect, the prospective purchaser would have the option to exchange contracts to purchase the property, right up until the point when the vendor decides to discontinue and requests the return of the contract.
Firstly, this would not be gazanging, because it would not be withdrawing as a result of a change of heart about selling. The vendor would normally only do this if a higher offer was made and preferred, subsequently.
Secondly, this new method should also substantially reduce gazundering in falling market conditions by encouraging buyers to progress to exchange more quickly than tends to happen currently. A problem frequently seen in these conditions is that buyers may put in offers on multiple properties whilst intending to proceed with only one of them. This, together with the time bought by getting each house taken off the market, is what usually drives the gazundering strategy of some buyers. This needs to be eliminated from the sales transaction process, and these new proposals would help to accomplish this.
Thirdly, the new strategy works to reduce the likelihood of gazumping as the onus would be with the prospective buyer to get on and purchase. Should they fail to move towards being ready to exchange contracts, of course, the vendor ought to be perfectly entitled to discuss better prospects and receive such better offers as there may be in the market. If ultimately, the vendor should decide to accept another higher offer, this would clearly be as a result of a rising market but the first buyer would usually still have the option of buying, assuming they could do so in the quickest timescale.
For the above reasons, the idea that a purchaser ought to insist that the house is taken off the market as a condition of the offer, is just a poor attempt at placing an anti-gazumping safeguard in place by that purchaser and an attempt to gain more time to effect the purchase. In fact this should be discouraged because it actually encourages gazundering, for the reasons explained earlier.
In all these examples however, it’s the agents responsibility to check the ability of the buyer to secure the required funds to conclude the purchase, as well as do the legally required money laundering checks, well in advance of the agent recommending any offer to their client for actual acceptance. Sadly, this is not always done by them currently.
Better alternative ideas to be submitted please, in the interests of ‘democracy’ itself!
Definitions by Phil Spencer (requiring updating please):
gazumping, gazundering and gazanging:
For more info, see also: in-deed conveyancing. “We make the legal side simple”.
We have invited them to comment on this new idea of ours and are happy to update readers about their views about this.
See also: The Correct Way To Craft Asking Prices.
Posted by: Peter Hendry, Consultant in Housing Valuation at Property Match (UK).