According to the Guardian, “growing numbers of home buyers are in effect being charged for the privilege of having their offer accepted” – a practice banned in Scotland but not illegal in England and Wales.
The Property Ombudsman code did state that agents should not take pre-contract deposits, other than when new homes were being sold, where developers commonly take non-refundable deposits. However, the code preventing agents taking such fees changed last October.
The code now reads: “Unless requested by a property developer, you should not generally facilitate pre-contract deposits. However, if you do, you must take into account specific instructions from sellers.”
There must be written agreements provided by agents which set out the circumstances in which the money would be used towards the purchase, returned to the buyer or kept by the seller.
Under the code, agents who take pre-contact deposits must have insurance and hold the money in a separate client account.
The Guardian now says it has been contacted by “a number of angry would-be home buyers who handed over cash to an estate agent and are now battling to get it back” after they withdrew from their purchases, typically on legal advice or because of poor surveys.
It cites two cases where potential purchasers handed over money before the TPO code was revised.
The Guardian quotes one of the agents involved as saying that it was not a pre-contract fee but a “non-refundable reservation fee”.
According to TPO Katrine Sporle, the updated code of conduct reflects market conditions where there are more buyers than properties.
She said that a pre-contract deposit “has the potential to give a buyer and a seller the confidence that the transaction is likely to complete – the potential for gazumping is significantly reduced, as is the risk of last-minute price negotiations”.