BEWARE: The ‘reserve’ does not reserve the flat for you. It does not take the flat off the market, and it does not bind the seller or their agent in any way. The reserve is incorrectly titled and very confusing.
On the reserve, you write your offer for the property and pay a deposit of app 1% of the purchase price to the agent. The seller has a number of days, normally seven, to accept your offer. If they accept, you proceed with the purchase and the deposit should go towards the purchase price. If they reject, the agent should return your deposit.
Careful! Agent’s Fee. Some agents charge you the buyer. Surprise! So if the seller rejects your offer, the agent will keep part of the reserve as their fee. This fee, however, is not in the property’s listed price. Before you sign the reserve, read the fine print carefully; if in doubt, propose a clause: “The Agent is not charging the Buyer anything in this transaction.” The agent should agree because the seller is already paying them 3% to 7% of the property’s purchase price. At the very least you’ll find out what’s going on.
Seller’s Obligation. The reserve has no effect on the seller. They may continue showing the property, and the agent may disclose your offer to other buyers. It’s perfectly legal. To fix this, put a clause in the reserve that says: “Upon signing this reserve, the Seller will take the property off the market and reserve it for the Buyer.”
Buyer’s Obligation: If the Seller accepts your offer you must buy the property or lose the deposit. If they accept, they’ll request a 10% non-refundable deposit normally within 10 days. They move fast to lock you in as quickly as possible.
Buyer’s Options: Ask for a right of first refusal: “The Agent or Seller can’t sell the property during the reserve period without offering it to me first”. You might have to pay a higher deposit and the agent might say no.
Buyer’s Duty. Give yourself time. If the seller accepts your offer, they’ll want the 10% deposit right away or “we’ll sell to someone else”. But you can’t pay 10% until you thoroughly inspect and review the property’s legal documents. This takes time, so write in the reserve: “Buyer is granted up to 21 days to investigate the property before they pay the 10% deposit.”
Mortgage. If you need a mortgage your bank will need time to approve it. So write in the reserve: “Buyer does not have to pay the 10% deposit unless the bank approves Buyer’s mortgage.” Good luck with this, but you have to discuss this issue right away. (There are other solutions to the mortgage-time issue).
Paying the Reserve. It’s usually paid to the agent. Before you pay:
1) Ask to see the agent’s license to sell property, called an API license.
2) Ask to see their written authorization from the seller to collect the money.
3) Ask if they are charging you a fee and write it in the reserve.
4) Get a detailed, signed receipt back; you’ll need it when you sign the deed.
If the agent refuses these requests or finds them unusual, they’re either dishonest or incompetent. It might be best to move on. For questions regarding these and other issues, call or email: Mark Carr at 664 665 365 or [email protected]