The House Price Solution: devised to resolve the current housing crisis completely – final or 3rd explanation

For those who wish this, here is a more detailed description of the new ‘Registered House Agent’ strategy including the House Price Solution:

Firstly from the vendor’s viewpoint:
A. Under the Moving Contract or ‘MC agreement’, the agent would still act for vendors (as now), but instead of merely being a selling agent, would act primarily as their buying agent. In other words, the same agent would find them their next house, ‘the object-property’, negotiate the best terms with that property vendor’s agent (whether that agent has an ‘MC agreement’ or not), and also sell their existing house.

As a follow-up but unlike the existing arrangements, the RHA or Registered House Agent with an ‘MC agreement’, acting for the buyer, would request ‘the object-property’ vendor to instruct their solicitors to sell their property to buyer 1.

At the same time a two party pre-contract agreement called a ‘lock-out or reservation agreement’ would be signed, the parties being as mentioned above but with the option of including, as a third party, the relevant RHA(s) if deemed necessary in specific circumstances.

The basis of each agreement which would be legally enforceable would provide for a set lock-out time, during which the forward vendor (i.e. the seller of the property in question ‘the object-property’) would not continue marketing the property or show any more viewers around it and agree not to canvas for or take any other offers prior to an ‘exchange of contracts’ with the named buyers, providing that this occurs within the agreed time limit.

If the terms of the agreement were broken, the party disadvantaged may seek to claim the sum set down in the agreement by way of damages or compensation.

In addition to bringing more certainty in concluding negotiations between the parties, the effect of this would be to stop (or substantially reduce) gazumping happening in the intervening time. As stated earlier one thing this solution will also do is to massively reduce the rate of sales chain failures.

[N.B. If the agent which happened to secure the best deal for the vendor, both for the sale of their existing property and the purchase of their preferred next property did not already have an ‘MC agreement’ with that particular client at the time, one could be signed retrospectively, or in other words at the same time as the lock-out or reservation agreement was to be signed by ‘the object-property’ owners; and this would effectively over-ride all other ‘MC agreements’ in the same way that a last Will and Testament over-rides all prior wills.]

B. If an existing, or alternatively a new agent were to obtain an offer involving a higher price on ‘the object-property’ – acceptance of this would become subject to the expiration of the pre-contract lock-out or reservation agreement and would merely give the existing buyer of the house in question, added impetus to make sure that a legal contract for the sale of land and buildings was concluded as swiftly as they could do so and within the lock-out timescale. There should be penalties specified in the agreement aimed primarily at the vendor of ‘the object-property’, if they should default without just cause but also in respect of the purchasers. However the opportunity to default if either party wished to would remain, as no contract for the sale of land would yet be in place.

All legal conveyancing would be carried out primarily in the way that it is done at present.

C. In the event that the lock-out time period was unavoidably exceeded or formal contracts for sale were not exchanged within the prescribed time, the pre-contract lock-out or reservation agreement would expire, or lapse.

The owner of ‘the object-property’ could, of course, then carry on using their existing RHA or Registered House Agent, and/or instruct more RHAs, by using ‘MC agreements’, both to find them their next house and sell their existing one – the one that was the subject of a recent abortive sale.

The vendor of ‘the subject property’ however, (i.e. the buyer whose lock-out or reservation agreement has just lapsed), may simply carry on with their search for another suitable property, again using their existing RHA via an ‘MC agreement’, or signing up with additional agents using more ‘MC agreements’ if this should be deemed necessary.

It should perhaps be explained here that existing estate agents with traditional selling contracts would, in the interim period and while these new procedures became fully accepted, slightly confuse the picture until sufficient numbers of estate agents began offering this new and improved service. For this reason a consensus in favour of the necessary change, including Government legislation confirming this would undoubtedly be required.

Secondly looking at this from the buyer’s viewpoint:
1. An estate agent with an ‘MC agreement’ would initially be commissioned by a vendor as above, both to find that particular buyer their next house, ‘the object-property’ and negotiate the best terms they can on that purchase, as well as assist, using a different MC agreement, acting on behalf of a different buyer to conclude the sale of their existing house (if any). Once ready, the relevant agent (or the agent offering the buyer the best overall terms), would request the forward vendor to instruct their solicitors on the terms agreed for sale, as in ‘A’ above.

The successful ‘RHA or Registered House Agent’ would be paid on completion of the combined sale of the purchaser’s existing house and the legal completion of the house being bought, ‘the object-property’, using similar machinery as currently exists with conveyancers.

A pre-contract lock-out or reservation agreement, as explained in the vendor’s example above, would be signed again by ‘the object-property’ vendors, the buyer, and their ‘RHA or Registered House Agent’, if deemed necessary.

As already explained above, this would simply provide for a set lock-out time during which the forward vendor (i.e. the seller of ‘the object-property’) would agree not to continue marketing the property or show any more viewers around it and would agree not to accept any other offers prior to exchange of contracts with the named buyers, provided that this occurs within an agreed time limit. However, as previously explained, there would remain the opportunity to default if either party wished to, as no contract for the sale of land would yet be in place.

As explained above, the primary effect of this would be to stop (or substantially reduce) gazumping happening in the intervening time, by formalising the terms provisionally agreed between the parties which would be an extremely valuable addition.

In other words, unlike existing ‘selling agents’, the RHA or Registered House Agent with an ‘MC agreement’ would be primarily helping the buyer to find their ‘object-property’, and would assume responsibility for both transactions, but importantly, they may also sub-contract out the sale of the existing house to other RHA or Registered House Agents if this should prove to be necessary, e.g. where the RHA concerned is not active in the area in which the existing property is located.

This would mean that the active RHA or Registered House Agent with an ‘MC agreement’ would have had to have found a buyer for the house being sold (‘the subject property’) before they could conclude a deal for the forward purchase ‘the object-property’. This, of course, should happen in the normal course of events, in most cases, anyway but currently it does not always.

2. Again, if any other agent should attempt to contact the owner, or the owner’s ‘RHA or Registered House Agent’ handling the purchase of ‘the object-property’ with a different offer worth considering, they would be told the house is currently sold, (subject to contract), of course. An agreed pre-contract lock-out or reservation agreement with a set time duration would be running, such that the vendor of ‘the object-property’ could not accept other offers prior to exchange of contracts. As already explained this is designed to stop, or substantially reduce, the occurrence of gazumping within the agreed time-scale but would not be an actual contract for the sale of land so would be straightforward to have executed.

As a result, any new estate agent (even one with an ‘MC agreement’), may still offer a higher price – making the offer subject to the expiration of the existing lock-out or reservation agreement. Again, this would merely give the existing buyer more impetus to make sure a legal contract for the sale of land and buildings to them was concluded as swiftly as they could do that.

3. In the event that the time was exceeded and the lock-out period expired or lapsed, ANY estate agent, as long as they are a licensed RHA with a buyers MC agreement, may then legitimatelytry and finalise acceptance of a new offer and if they did so, new terms with new people would then be substituted. Under these circumstances it is easy to see why having an effective lock-out or reservation agreement would help the performance of the housing market as a whole, primarily by setting down agreed time-scales for the progression of conveyancing under the terms of the offer.

Assuming the new introducing agent was working for a different or prospective buyer but still via an ‘MC agreement’, then again a new pre-contract lock-out or reservation agreement having a new lock-out time provision would be executed with the new purchasers (to replace the expired one).

Obviously in these circumstances the earlier purchaser would, by that time, have lost their rights to conclude a purchase of that particular property.

The following is repetition from the previous page giving the explanation of the logistics of the process, whilst looking forwards going up the sales or lettings chain.

  • Vendor 1 sells to Buyer 1 (that’s property 1 of course); with buyer 1’s solicitor doing the conveyancing.
  • Then, when Vendor 1 goes to buy forward they become Buyer 2 (of property 2 ); buying from Vendor 2 (with Vendor 2 and Buyer 2’s solicitors doing the conveyancing, as is usual).
  • The new bit is that Buyer 2’s solicitor pays the RHA out of funds provided by Buyer 2. (The seller pays no separate fee.)
  • Then to progress further up the chain, Vendor 2 becomes Buyer 3 (of property 3); and buys from Vendor 3 (with Vendor 3 and Buyer 3’s solicitors doing the conveyancing, again as usual).
  • Once again the new bit is that Buyer 3’s solicitor pays the RHA out of funds provided by Buyer 3: – and so it continues all the way up the chain.

NB. No selling agent fees are involved anymore in either case.

In each case, it should be noted, the ‘finding’ or Registered House Agent is paid on completion by the buyer (instead of by the seller as has happens up until now).
The agent which had been working on the ‘sale’ of each property would be told when to stop marketing by the vendor at the appropriate time (as happens currently).

In essence this means that the agent doing the selling, only has to market ‘the subject property’.

After a buyer is found, it’s the buyers agent that would do all the ongoing work, including managing each purchase through to completion – instead of the selling agent as at present.
Except when the transaction involves only a sale, it’s the buying agent that gets paid the fee.

If the transaction is purely a sale, arrangements would need to be made, via the vendor’s solicitor, for that agent to submit his account and be paid – in a similar way to the historic arrangements.

The Effects:
In the above situation it is then possible for the ‘failed’ buyer to conclude a deal to buy a different house using either the same (or a different) ‘Registered House Agent’ using ‘MC agreements’ with whomsoever they appoint as agents.
Flexibility for each buyer is thus is significantly increased.

Once terms have been provisionally agreed on a different ‘object-property’, and they have a purchaser for their own house, they could again arrange for a pre-contract lock-out or reservation agreement to be executed for that property.

This new method of securing an offer on a house should mean increased choices becoming available for buyers, because each buyer would have increased access to more estate agents, as licensed RHAs, helping them to find suitable properties.

It would also enable buyers to make final decisions based on the very best opportunities currently available, both in regard to the selling of their existing house and in regard to the purchase of their preferred next house. As just explained, this would be accomplished by enabling buyers (if they should think it necessary) to appoint multiple estate agents, as licensed RHAs, to work for them in their search for the property that best suits their requirements.

By freeing up buyers in this way, the housing market would start functioning more like a perfect market than it has in the past. This would be of considerable advantage to all the players involved – both business-wise, and by increasing the choice of property for buyers.

Essentially, the only thing that an estate agent, as licensed RHA, would not be able to do, using ‘MC agreements’, would be to act solely for a vendor of course, and this is the primary change which I advocate should now happen.

I accept that ideally this would require the government of the day to give it their backing, if (and as is most likely) traditional estate agents are reluctant to make such a change themselves. It should be stressed however, that the advantages for such estate agents, as licensed RHAs, would seem to me, patently to outweigh the disadvantages by a very considerable measure.

[As an aside, there would need to be a retained flexibility for those vendors without any forward purchasing intentions to sell without having to use a new ‘MC agreement’ and instead merely use an estate agent as a free selling agent by allowing buyers and their RHAs to enquire after the property – as happens at present. However for this to work, there would need to be a provision in agency law that if a later ‘MC agreement’ were signed by the same client it would take precedence over a traditional sole or multiple agency selling contract and that the latter would be superseded by the former.]

Unlike the plan to build large numbers of houses very quickly, which is doomed to fail in the short-term because of the logistics of building them, this improvement to the way in which the housing market functions could be made very swiftly indeed.


TV programs such as BBC 1 Panorama’s ‘The Great House Price Bubble?‘ investigating the pros and cons of ‘Help To Buy’ mortgage guarantees, screened on Monday 11th Nov. at 2030hrs, and Channel 4’s Dispatches ‘The Property Market Undercover’ the week before, have recently investigated the current situation and found continuing serious misfeasances in the way that houses are sold. Since we are still in the aftermath of the worst financial crash since the 30’s, with interest rates still at rock bottom, it’s only right that something fundamental and of significance should be done to change and improve the operation of the housing market.

But why?
Let’s look at the following extracts in the news following the 2008 financial crash:

Seen 11 Nov 13:
www.estateagenttoday.co.uk/news_features/House-prices-in-astonishing-leap-across-country-claim

Seen 14 Oct 13:
www.estateagenttoday.co.uk/news_features/Brian-Murphy-Blog
“In the period 1997 to 2007 significantly more than a million housing transactions took place each year in England & Wales. In the period 2008 to 2012 the number of transactions has not been above 662,000 with numbers averaging 640,000 over the last five years.” These numbers quite clearly demonstrate how constrained the market has become, with many would-be borrowers citing the inability to save the level of deposit required by lenders as their primary reason for not entering the property market.

Increased borrowing arrangements have come on-stream since the 2008 recession and these have contributed to a rise in average prices, which is accelerating ahead of net wages increases. This is continuing to be of concern.

Seen 22 Feb 17:
www.gov.uk/government/uploads/system/uploads/attachment_data/file/592364/UK_Tables_Feb__cir_.pdf
The seasonally adjusted figure for residential sales completions to Jan 2016 (prov) was 1,231,400 with a broadly similar number of sales completions for the 2017. The uplift in House prices recently having been seen may be fairly attributed to excessive bank finance, with the resumption of more lending following the 2008 financial crash and which is, in my opinion anyway, a primary cause cause the housing markets to start overheating yet again.

What could existing estate agents do better?
Much – based on the explanations above.

For a glimpse of some of the current and ongoing problems associated with traditional estate agency, please see the following links, which will open in a new tab or window. These would all be resolved by estate agents becoming licensed RHAs, using ‘MC agreements’ instead of ‘Selling Contracts’.

communicate your way to faster completions – earlier pdf on estateagenttoday (but no longer available).

Also seen Fri 11th Oct 13:
www.thetimes.co.uk
Chris Leslie, Shadow Chief Secretary to the Treasury, said: “If ministers are serious about helping first-time buyers, they should bring forward investment to build more affordable homes.
“Rising demand for housing must be matched with rising supply, but under this Government house-building is at its lowest level since the 1920s.
“Unless George Osborne acts now to build more affordable homes, as we have urged, then soaring prices risk making it even harder for first-time buyers to get on the housing ladder. You can’t tackle the cost of living crisis without building more homes.
“Rather than waiting a year, the Bank of England should immediately review the details of the scheme. How can it make sense that a policy which should be about helping first-time buyers will allow taxpayer-backed mortgages for homes worth up to £600,000?
“And we have to know how much the Treasury intends to pocket in fees from people who take out Help to Buy mortgages. How will this money be accounted for in the public finances? George Osborne shouldn’t make struggling first-time buyers pay over the odds as he desperately tries to fill the hole in his failed deficit plan.”

On 17th November 2019:
Our Prime Minister was giving an election speech at the CBI conference. Statistics cited in a question to him indicated that house prices for first-time buyers are running at 8 times average annual wages. The question was whether the Conservative government’s housing policy is about affordable housing for all of our workers?
The answer given did not fully address this and therefore this continues to give rise to increasing ongoing concern.

So, what should be done?
Recognise that there are problems with the knee-jerk reaction simply to build more houses. The problems are twofold.
Firstly, as we all know, to build substantial numbers of houses takes time. This needs ‘forward’ planning. It simply cannot be done in an instant, or even in a year!

Secondly, however many houses are quickly built, they will only form a tiny percentage of the total number of houses already available and so can only have a tiny affect by lowering the prices being paid for them. Doing this will not therefore resolve the problem.

Instead, the way to improve the market and in so doing, get fair prices for all is to change ‘the way’ houses are currently marketed by improving current methods.
The methods used by estate agents nowadays, have been used for several decades, without change, and understandably now require careful reform.

Unlike the plan to build large numbers of houses very quickly, improving the marketplaces could be done very swiftly.

I forecast that by replacing traditional estate agents’ selling contracts with MCs, turnover in the housing market would quickly start to recover and the direct result of this would be, more builders starting to build more houses, as there would then be a ready market for these.

Some Earlier Quotes:
housing-minister-role-is-relegated-to-a-junior
Richard Lambert, chief executive officer of the National Landlords Association, said among other things:“It is extremely disappointing to see The Coalition reduce the significance of housing within Government. Given the significant challenges facing households throughout the country, it is essential that housing takes centre stage in the political debate.” We agree.

Help-to-Buy-second-phase-opens-to-business
And Andrew Tyrie, chairman of the cross-party Treasury Select Committee, said that ministers had failed to allay its concerns about the housing market. He warned that with the “chequered history of government interventions in residential property, great care will require to be taken”.

Also, ‘Help to Buy’ was labelled mad and “very dangerous” by the Institute of Directors.

I do agree with this remark too, which then begs the question:
“Exactly what should be done, by whom, and when by?”

The answer clearly is: – The present government should bring in ‘Moving Contracts’ or ‘MC agreements’ to replace ‘Selling Contracts’ before the next General Election.

Here’s food for thought?
It’s definitely within the grasp of top estate agents to permanently improve the UK housing market themselves. But why don’t they?

The above work employs a new concept in economics called Market Design. This is a relatively recent area of economics.
It has the potential to utilise established economic theory to rescue the British housing market.

It involves asking the question: ‘What is our goal?’
Its goal is to develop a way to make housing markets throughout the UK more inclusive, so that new buyers can further increase home ownership everywhere, as opposed to large numbers of people continuing to rent whether by choice or otherwise.

The ‘designed’ change would be to make estate agency operations within the housing sector become oriented towards listening to every buyer’s requirement so that those owning property can more easily both buy and sell when moving between two properties, by getting both transactions to happen in a synchronised way.

I’d certainly be interested in your thoughts and observations and would be happy to publish any that are constructive.

Thank you for following this. Please send in any comment or suggestions you may have for moderation.

If you would like to review the beginning of this detailed proposal please follow the link below.

Back to initial explanation


Bibliography:
Earlier online articles involving discussion amongst estate agents, which illustrate the problem generally.

www.estateagenttoday.co.uk/news_features/House-prices-in-astonishing-leap-across-country-claim

www.estateagenttoday.co.uk/news_features/Mortgage-lending-the-highest-in-five-years-says-Bank-of-England

www.thetimes.co.uk/tto/news/politics/article3901688.ece

www.estateagenttoday.co.uk/news_features/New-Get-A-Move-On-campaign-aims-to-shake-up-home-buying-and-selling

www.estateagenttoday.co.uk/news_features/Dodgy-estate-agency-practices-put-under-spotlight-in-TV-programme

www.estateagenttoday.co.uk/news_features/Asking-prices-up-again-as-property-supply-dwindles

www.estateagenttoday.co.uk/news_features/Shelter-calls-on-ministers-to-rethink-Help-to-Buy

www.estateagenttoday.co.uk/news_features/Talk-of-a-housing-bubble-is-hysteria-says-think-tank

www.estateagenttoday.co.uk/news_features/New-OFT-guidance-issued-on-definition-of-estate-agents

www.estateagenttoday.co.uk/news_features/Sarah-Beenys-private-sales-site-Tepilo-to-relaunch-as-online-agent

www.estateagenttoday.co.uk/news_features/A-tale-of-two-Britain-in-bipolar-housing-market

www.estateagenttoday.co.uk/news_features/Estate-agents-are-an-army-of-invaders-who-must-be-stopped-says-Cable

www.estateagenttoday.co.uk/news_features/RICS-call-to-cap-house-prices-is-shot-down-in-flames

www.estateagenttoday.co.uk/news_features/Second-steppers-still-stuck-in-first-homes

www.estateagenttoday.co.uk/news_features/Supply-plummets-in-London-property-drought

www.estateagenttoday.co.uk/news_features/Housing-market-recovery-threatened-by-low-volume-claim

www.estateagenttoday.co.uk/news_features/Asking-prices-hit-their-highest-ever-says-Rightmove

www.estateagenttoday.co.uk/news_features/Estate-agents-and-surveyors-beg-to-differ-on-state-of-market

For all the details about how to improve housing affordability and sales throughput swiftly and economically, please follow the link below:

The House Price Solution

How to Improve all local housing markets in England and Wales

Posted by: Peter Hendry, Housing Valuation Consultant
Author of:– The House Price Solution otherwise known as The Hendry Solution.

What do you think about this idea for drastically improving the operation of all housing markets in Britain?

Constructive comments are very much welcomed.

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