Written evidence submitted by Gazeal Limited [HBS 044]

Gazeal is a legal/property technology business that is seeking to address the issues rightly raised in the Call for Evidence. Gazeal brought its service to market four years ago after extensive research and development and have been refining our service continually since then in response to market feedback.

The Gazeal Service, our experience and the data we have collected are very relevant to the questions put in the Call for Evidence under “The Transaction Process” and “Information Provision”, but particularly with regard to Reservation Agreements, gazumping and gazundering.

This Evidence will therefore explain who Gazeal is, what issues we address that are relevant to the Call for Evidence, and how we are doing this through the service we offer. It will then give a detailed breakdown of relevant trading data, with some analysis that we hope will assist the Committee in its investigation of the issues before offering a conclusion.

About Gazeal

Gazeal is a company whose business is to support sellers, buyers and Estate Agents through the provision of Up-Front Information about residential properties for sale and the putting in place of Reservation Agreements to secure that transaction. We are the leaders in the provision of Up-Front Information, and indeed, so far as we are aware, the only providers of a Reservation Agreement service in the residential property sector.

Gazeal has listed £4.5BN of residential property for sale, has provided Up-Front Information for £1.84BN of residential property, and has executed Reservation Agreements for over £0.85BN of residential property.

Over the last few years Gazeal has been Runner Up “Innovator of the Year” at the London Innovator Awards, Winner of “Prop Tech Company” of the Year at the Property Wire Awards, Finalist for “Most Collaborative Business” at the UK Prop Tech Association Awards and runner Up for “Best Technology Company” at the Property Reporter Awards.

The Executive Management team are Duncan Samuel, who is a Solicitor (non-practising), being admitted to the Roll in December 1991 and who has been Managing Partner of three different firms of Solicitors and is a serial entrepreneur in the legal and property technology sector, and Bryan Mansell, who has 30 years experience as an Estate Agent and who has been, inter alia, a main Board Director Foxtons, a Regional Director of Countrywide, MD of YourMove and a Director of the Guild of Professional Agents. Bryan was also the founder of All Stars, an Estate Agency training and mentoring business.

Background

As the Committee will be aware, under the law in England and Wales, an offer to buy a property is not binding until Exchange of Contracts, a period that is generally estimated at 8-12 weeks[1]. It is an industry standard metric that a third of all Offers that are accepted fail to get to Exchange of Contracts[2]. The proportion varies according to the market, but as there are, on average, 1,000,000 property transactions per year, this means that about 300,000 fall through.

Consumers, particularly buyers, will have spent money on searches, valuations, legal fees, surveying fees, broking fees in this time, and have no claim for these losses.

Homeowners Alliance, the advocacy service aimed at homeowners and a member of the Home Buying and Selling Group, have found that;

“Our research found that the average seller experiencing a failed transaction ended up £2,727 out of pocket, and one in ten surveyed incurred more than £5,000 in costs.[3]”

Multiplying these figures by 300,000 shows that a lot of money is wasted every year.

This of course does not account for the time lost, nor the anxiety and distress caused.

The Gazeal Service

1. Up-Front Information

While the customers of Gazeal are the sellers and buyers of residential property, it is distributed through Estate Agents, who introduce sellers to the service. Gazeal obtains and verifies title to the property and allows Agents and seller to record all of the data that is required by NTSELAT and by the Law Society Conveyancing Quality Scheme digitally when the property is listed for sale. Gazeal then enables the Estate Agent to send a link to prospective buyers allowing them to view all of this Information before they make an Offer.

2. Reservation Agreement

At the time that the Offer is made, the Parties have the opportunity to enter into the Gazeal Reservation Agreement.

By the Reservation Agreement, each Party is making a commitment to pay the other Party a sum of money (“the Commitment”) to the other should they withdraw from the sale unreasonably, or unreasonably refuse to Exchange Contracts, during the Term.

Neither side puts down a deposit. Instead, Gazeal gives a guarantee of each Party’s Commitment to the other.

The Commitment is completely mutual, and the wording of the Reservation Agreement is standard and fair to both Parties, with appropriate consumer protections. It does not have to be negotiated and does not require the input of lawyers (though they are welcome to get legal advice if they wish). All that the parties need to agree, through their Estate Agent, is;

1. the amount of the Commitment, and
2. the Term (i.e. when the Reservation Agreement will expire).

The amount of the Commitment is a figure that the parties agree is suitable to the transaction, starting at £2,000, and going up to a maximum of £25,000. The Parties each pay a fee to Gazeal for its Guarantee of this amount, which constitutes Gazeal’s income. (Gazeal have insurance to cover its liabilities under the Guarantee)

The Term should be the time that they reasonably estimate will be needed to get to Exchange of Contracts, and they are encouraged to add additional time to allow for unforeseen delays (although should they be approaching the end of the Term before Exchange has taken place the Term can be extended).

The buyer can withdraw reasonably if;

1. Urgent repairs are identified by their Surveyor the cost of which comes to more than 1.5% of the agreed sale price.
2. Bad legal title is identified by their Conveyancer
3. If the seller unilaterally tries to change the terms of the sale
4. If either Party has disclosed to the other, prior to entering into the Reservation Agreement that they are part of a chain, and that chain collapses
5. If the mortgage finance falls through (subject to them having made two good faith mortgage applications)

The seller can withdraw reasonably by reason if;

1. If the buyer unilaterally tries to change the terms of the sale
2. If either Party has disclosed to the other, prior to entering into the Reservation Agreement that they are part of a chain, and that chain collapses

What if there is a Dispute as to whether a Party is entitled to withdraw from the Sale?

Gazeal operate a Dispute Resolution Process, at no cost to either Party or to the Agent.

If the Dispute Resolution Process is unable to reach agreement between the Parties, either is entitled to refer the matter to the Independent Expert for his Determination, and, if appropriate, his Award. The fee for this is 10% of the Commitment, or £350, whichever is the higher. This is awarded by the Expert at his discretion, but generally on the basis of “loser pays”.

The Independent Expert is a recently retired Senior Circuit Court Judge and Kings Counsel who has specialised in property for all of his career.

Incentives and Effect of the Reservation Agreement (“RA”)

For the Seller

Plainly, it will not benefit a seller to accept a gazumping offer if it is for less than the Commitment, as if he does so, he will be in breach and will owe the Commitment to the buyer.

The seller also knows that the buyer will not be able to put in a gazundering offer near Exchange when the Parties are committed to the sale without them being in breach of the Reservation Agreement and owing the Commitment to the seller.

The seller therefore can be confident that he has a real contractual commitment to the sale from the buyer before he removes it from the market.

For the Buyer

The buyer can proceed to incur valuation fees, search fees, survey fees, broking fees and solicitor’s costs confident in the knowledge that the seller has removed the property from the market and is disincentivised to consider or accept a gazumping offer.

For the Agent

The incentive for the Estate Agent is that the Gazeal System deals with NTSELAT compliance requirements, and it shortens time to Exchange by reason of Up-Front Information.

It also increases his business efficiency in that if the Agent has 33% of sales falling through, he has to sell three houses to generate the income from two. If he uses Gazeal he has to sell two properties to generate the income from two.

Trading Statistics

In the period from March 2020 to date, Gazeal has;

• Listed 12,734 properties for sale worth £4.5BN
• Has done buyer’s Information Packs on 5,462 of these properties for properties for sale worth £1.84BN
• Has executed Reservation Agreements (“RAs”) in respect of 1,910 sales worth £0.85BN
• Has dealt with queries about the applicability of the terms of the Reservation Agreement 211 times  - 11.05% of all RAs
• The Arbitrator has been called upon to adjudicate on 13 cases – 0.68% of all RAs
• Disputes have resulted in the payment of the Commitment 39 times – 2.04% of all RAs
• By the buyer 28 times  - 1.46% of all RAs
• By the seller 11 times – 0.58% of all RAs
• Of these Gazeal has paid under the Guarantee 12 times – 0.63% of all RAs
• Gazeal has so far recovered from the defaulting Party 6 times
• Proceedings for recovery are ongoing against all other defaulting parties.

Analysis

We believe, consistently with the experience of Agents who use our services on all their cases, that the Gazeal Service reduces the fall-through rate from 33% to about 6%.

Gazeal is only involved in the run up to Exchange. We are not involved in the Exchange itself, so confirmation of Exchange would have to come from conveyancers or agents, and this is not always forthcoming. We are therefore not able to give comprehensive data on the number of sales that do get to Exchange of Contracts. However, it is a very fair assumption, and consistent with our experience, that to all intents and purposes all parties will contact the Dispute Resolution team, either directly or through their Agents, if it looks as if Exchange will not take place during the Term. This takes place in 11% of all RAs, as we outline above.

If one party has to pay the Commitment (which happens in 2.04% of cases) then the sale will have fallen through.

If either party has been in touch and the Commitment has not been paid then either the sale will have proceeded to Exchange, or one party will have been able to withdraw reasonably. Our experience is that this is about half and half.

Hence we believe it is a reasonable conclusion, consistent with feedback from our Estate Agents who process all of their sales using the Gazeal Servcice, that only 5-6% of sales that are reserved fail to get to Exchange of Contracts.

Up-Front Information

We believe that the Up-Front Information that we provide shortens the time to being ready to Exchange by two weeks.

While, for the reasons stated above, we are unable to gather the date of Exchange we believe that Up-Front Information gathered on a listing and made available to buyers before they make an offer both reduces the number of sales that fall through and shortens the time to Exchange. The caveat to this is that most properties that are sold are part of a chain, and the chain can only move at the speed of the slowest link.

The real benefit of Up-Front Information would come therefore if it were applied to all properties across the market, either as a part of primary or secondary legislation, or by regulation. However, experience shows compliance will depend on enforcement, almost certainly by National Trading Standards. which will itself depend on the resource that they have.

However, even in the current environment, preparing Up-Front Information in the way in which Gazeal does eliminates most of the time involved in the preparation of the first step that the seller conveyancer must take, which is the preparation of the Contract Pack to send to the buyer’s Conveyancer. It is a widely accepted industry metric that from offer to the Contract Pack being sent out is on average two weeks, hence why we believe that the Gazeal Service shortens the time to being ready to Exchange by two weeks.

Reservation Agreement

We believe that the above figures unequivocally demonstrate that a fair, balanced and proportionate Reservation Agreement with a Guarantee that eliminates the need for a Deposit, with an independent and low-cost Dispute Resolution and Arbitration process reduces the number of sales that fall through.

The Guarantee means that the Reservation Agreement can be put in place without the need for a cash deposit, which

(i)                 allows the Reservation to be mutual (as the seller is making an equivalent commitment to the buyer, rather than it being solely by the buyer, as is the case when a cash deposit is required) and is therefore regarded as fair, and

(ii)               as the buyer is usually highly geared and cash poor prior to Exchange, but will have the deposit available if the transaction fails, it allows each Party to make a financially meaningful commitment to the other without it affecting their ability to proceed with the sale, and

(iii)            it avoids all of the complications associated with money laundering checks on a deposit that will have to be repeated by the lender and the solicitors in any event.

The ADR process means that, while the Reservation Agreement is drafted to make the decision as to whether a breach has taken place as fair and as binary as possible, the parties have a low cost and fast way of getting expert adjudication on disagreements. Without this, the costs of enforcement would be out of all proportion to the sums involved. If any Agreement cannot be enforced, at a cost that is proportionate to the amount in dispute, if is of course essentially meaningless.

The Agent’s Experience

Cooper Adams, Estate Agents in Preston have been using the Gazeal service for some years now. For the benefit of the Committee, Shaun Adams, the owner and manager of the business has written;

“For my business, the use of Gazeal’s Reservation Agreements help seller and buyers so much. They provide security and commitment from both sides during the transaction.

Gazeal’s agreement is fair and takes into account the legitimate reasons why a Party would fairly withdraw, but if one side starts to play games they would be breaching the agreement.

Virtually every country in the world has a legal commitment when a sale is agreed and the UK need this to be mandatory.

We have been using them for four years and welcome any Government advisor to visit us and see how well they work.”

We are able to provide additional evidence from Estate Agents users of the Gazeal Service on request.

If the Gazeal proposition is so good, then why has it not been adopted in a more major way by the market?

Gazeal has been growing organically, but not exponentially, as the benefits of the service might at first glance lead one to expect. There are various reasons for this, including the conservative nature of the market, and are therefore considerations that the Committee are encouraged to bear in mind when considering solutions.

The main beneficiaries are the seller and the buyer, and we have not yet been in a position to market directly to them.

The attitude of the professionals involved in the home buying and selling process varies from enthusiasts to agnostics and some to a certain degree antagonistic. Conveyancers in particular are prone to giving blanket advice not to sign a reservation agreement, without even having read it, notwithstanding that it is one page in length, regarding this is additional work that is outside the scope of their retainer and for which they are not able to charge.

While we have some Estate Agents who put all of their business through Gazeal, Estate Agents are generally reluctant to introducing something new that they are not well practiced at introducing, no matter how good an idea it may seem to them, and selling agents in particular are loath to recommend anything to a seller that may involve them asking for money, as they are concerned that this may result in them losing a listing and the Estate Agency Commission. Further, they are very cautious about introducing something that may involve resistance from either Party’s conveyancers.

The government have not trialled or promoted the use of Reservation Agreements, save for recommending that they be considered in the How to Buy[4] and How to Sell[5] Guides. I understand, through the Home Buying and Selling Group, of which we are members, that this is because the decision was taken that they could not be trialled without also including Up-Front Information.

Conclusion

We believe that the above demonstrates that the combination of Up-Front Information and a fair and balanced Reservation Agreement with no requirement for a cash deposit and a swift and low-cost Dispute Resolution service is plainly in the interests of the public.

We believe that the development of this service is being held back by the fragmented nature of the various professional services required, and the innate aversion to any perceived risk, no matter how small or mis-conceived, that means that it is very difficult for anything new to gain sufficient traction to survive.

We therefore believe it entirely appropriate and would welcome government intervention by way of primary or secondary legislation or by working with the regulators of Estate Agents, Solicitors and Licensed Conveyancers to encourage its wider availability.

April 2024