What is gazumping?
Gazumping is when another person puts in a higher offer on a property you are in the process of buying and their offer gets accepted by the seller, thus scuppering your chances of purchasing the property in question.
For it to be gazumping, it has to happen when you have already instructed solicitors and have started the purchase process. Your verbal offer had been accepted by the seller, and the estate agent have sent out heads of terms to all parties, but the seller then goes back on their word and accepts a higher offer from another party before you have exchanged contracts.
If it happens earlier in the process, it’s simply part of the negotiation, and there is nothing to stop you putting in a higher offer.
Is gazumping legal?
Until you have exchanged contracts, either side are free to pull out of the transaction for any reason. This might be because one side have changed their minds, but it could equally be because the seller has had a better offer.
Whilst some believe that gazumping should be monitored and regulated by legislation, others say that it is a free market, and as there is nothing to stop the buyer from pulling out because they’ve found a better property to buy, why should the seller be prevented from pulling out because they’ve been offered more money. As a result, at present gazumping is legal in England and Wales, although there has been talk of a clampdown on the practice in recent years.
The law currently says that the seller is perfectly within their rights to change their mind and go with another buyer who offers more, but that it’s not the case everywhere in the UK. In Scotland, gazumping has been countered by legislation that makes any accepted offer legally binding, which means that the buyer is protected once they have made an offer and the vendor agrees.
Is it right?
Some will say that there is nothing wrong with gazumping, while others will visibly be annoyed by the practice, and the time and money that can be wasted as a result of it. While it may be true that the seller has not received any money from the buyer directly, that doesn’t mean that the buyer won’t be left out of pocket. More often than not, those who have been gazumped will have already spent a good deal of money on legal fees, having surveys done etc and that is without taking into account lost time.
What role do estate agents play in gazumping?
Much is made of estate agents being instigators of gazumping, but that is often far off the mark. Of course, a higher sale price can sometimes mean a higher commission for the agent, and some of the more unscrupulous agents out there will undoubtedly enjoy the thought of this process. However, the majority of small, reputable High Street firms will tell you that gazumping is one of the most unpleasant aspects of the business they have to deal with. In addition, it is the estate agents job to get the best possible price for their client, and if a higher offer is made, they have a duty to tell their client, even if their client has already started the purchase process with someone else.
The duty to inform
Few people realise that, by law, estate agents have to inform sellers of every offer they receive in writing, regardless of whether or not the vendor has accepted a previous offer, and that also extends to properties that have been removed from the marketplace. This comes from the Estate Agents Act of 1979.
All agents do need to present the offer, but the good ones will also give guidance and advice, explaining the situation clearly and honestly. When push comes to shove, it is the vendor’s decision as to whether to accept the higher offer or stay with the people whose offer they have already accepted. Agents cannot hide the offer, nor can they force someone to disregard it, if the sellers want more money from their sale, the decision is theirs to make.
How to avoid gazumping
It is impossible to prevent it completely, but if you are buying a property and you are worried that you may be gazumped, there are one or two things you can do to protect yourself.
Making the first offer on a property is a little like filling out a form. It often involves committing to arranging surveys and instructing solicitors. The problem, however, is that these steps can sometimes takes a lot of time which means there is also more time for another buyer to step in with an increased offer and/or for the seller to think that perhaps you’re not serious.
The faster you get through the buying process, the less time there is for you to be gazumped and to reassure the seller that you will move promptly on the purchase. Have as much in place before you make an offer as possible and do not be afraid to chase up your solicitors, lenders, and agents if you think that things are not moving fast enough.
Things to address before you begin house hunting include:
- Mortgage in principle
Getting a mortgage in principle is vital if you want to move quickly. You will still have to sort out things with your lender to agree to lend on a specific property but by having a preliminary agreement in place, the process will move much faster and smoother, thus lessening the chances of being gazumped.
- Conveyancing solicitor
Do your homework on solicitors before conducting a property search wherever possible and if you can, have one ready to instruct as soon as your offer is accepted.
Knowing who you are going to use means you can arrange a survey quickly once you have found a property you want to move on, and nay time saved by you will mean less time for potentials gazumpers.
Anything else to prevent gazumping?
Moving fast is number one but there are various other things you can do to avoid being gazumped.
As part of your offer, you can ask the seller to agree to an exclusivity clause which would prevent them from entering into negotiations with a third party for a fixed period of time. Exclusivity agreements can be a great way to avoid being gazumped and provide both the buyer and the seller with peace of mind over the sale.
Such contracts (sometimes referred to as ‘lock ins/outs’ or ‘preliminary’ agreements) are usually drawn up in conjunction with a deposit being made by both parties (buyer and seller). This will be forfeited should either one back out or change anything about the initial offer that isn’t included in the agreement, such as issues highlighted by a surveyor.
This process will incur additional costs, so it should only be used where necessary, such as if the property is very high value and/or extremely unusual.
Take off the market
Surprising though it may seem to many, sellers are not obliged to take their property off the market even if they have received and agreed a concrete offer. As a buyer, however, you can request they do so as part of your offer, which will also lessen the chances of gazumping taking place. If the seller refuses, that may just be to keep the pressure on you to move fast with the purchase, but it could also mean that they are hoping they might still get more money.
There is no real way you can guarantee not being gazumped. Even if you do all of the above in an effort to prevent gazumping form happening, there is still a chance that someone will come along with a better offer and your seller will let you down.
Therefore, the insurance industry has stepped in to offer cover for any losses you may incur should the worst happen. Ask your solicitor for more details about how this could help you.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.