A study into the use of reservation agreements in property transactions, completed in 2024 by what was then known as the Department for Levelling Up, Housing & Communities, concluded there are “practical difficulties” in their adoption, with questions raised about their effectiveness without more information for buyers.
The report explored the potential of reservation agreements to help make the home buying and selling process quicker, cheaper and less stressful for consumers. The high level approach was to identify options for designing a reservation agreement with industry stakeholders and test the ideas with home buyers and sellers, MHCLG explained on the release of the report this week “for transparency purposes”.
In the executive summary to the report – Reservation Agreements: Informing the design of an effective offer – MHCLG explained: “The rationale for commissioning this study about Reservation Agreements was to address the issue of failed housing transactions…The Government is committed to reforming the home buying and selling process so that it is quicker, cheaper and less stressful. Following a Call for Evidence in 2017, Reservation Agreements were suggested as one way of improving the home buying and selling experience for consumers.
“There was broad support for developing standard agreements, and in its response the Government committed to commissioning behavioural insights research to support the development of Reservation Agreements.
“The then Ministry of Housing, Communities and Local Government (MHCLG) commissioned Kantar (Public Division) to explore the potential of Reservation Agreements to help make the home buying and selling process quicker, cheaper and less stressful for consumers.”
A reservation agreement, MHCLG explained, refers to a legal agreement signed by the buyers and seller of a specific property in which they make a binding commitment to transact the property.
“The standard form of agreement would involve both the buyer and seller putting down a deposit, but a variant with a non-financial commitment was explored by the study.”
The report found that although there was support amongst consumers for reservation agreements, the focus groups identified the timing of information provided as a key issue.
It notes: “… [the] appeal [of reservation agreements] was initially undermined as participants felt it was unrealistic to ask buyers to make a commitment in the absence of key information about the property.
“As such, they struggled to see at what point in the process such an agreement would be of value: at the offer stage there was felt to be too little information to make a commitment; at the point of exchange commitment was already considered to be in place.”
The research identified common concerns with the home buying and selling process amongst consumers, including the length of time between offer and completion, a lack of clarity and certainty around costs and expenses, complexity due to the number of parties and a lack of control having to rely on others, a lack of transparency, and relatively low levels of trust between parties.
The report suggests the feeling amongst consumers involved in the research was that an agreement accompanied by information would improve the quality of offers by prompting buyers to think more carefully before making an offer. It could also “provide an incentive for both buyers and sellers to commit to the sale once an offer had been made, and increase transparency of the process, thereby helping to educate consumers”.
On the issue of gazumping, the report considers reservation agreements are unlikely to prevent the practice because sellers could make up for any lost deposits in any higher offer. It explains: “As such, Reservation Agreements were seen to function best as a commitment device that introduces friction to either party changing their mind without cause.”
Reservation agreements are a core part of the government’s home buying and selling reform roadmap, launched earlier this year following an extensive consultation. The roadmap outlines plans to digitalise the home moving process, with access to standardised and trusted property data as part of ongoing efforts to speed up transactions.
