Gazumping: What is it and How to Avoid it Happening to You
Imagine the scene: your offer has been accepted on your dream home, you’ve planned the colour scheme, where to put the furniture, cracked open the bubbly to celebrate when the estate agent calls to tell you another buyer has made a higher offer which has been accepted by the seller. You have just been gazumped! But gazumping is legal, and what can you do to avoid it happening to you?
A brief word on gazumping
According to a 2019 survey, 31% of UK homeowners had previously been gazumped in the last ten years.
It can happen any time prior to the exchange of contracts. Most cases of gazumping happens because the seller receives a higher offer and they want to maximise the amount they get for the property. Sometimes timing can be an issue, such as taking too long to get a survey done, sell your existing property, or if your conveyancer is dragging their feet. In these instances, the seller may decide to turn down an offer in preference of one from someone who is in a superior position to move forward with the purchase quickly.
Is gazumping legal?
Whilst there have been several attempts over the years to reduce gazumping, it remains legal in the UK. This is because the agreement between you and the seller does not become legally binding until the contracts have been exchanged. You will probably have noticed that in most instances, sales tend to be marked as “SOLD – STC”, which means an offer has been accepted, but the sale is still ‘subject to contract’ being agreed and exchanged.
Because the exchange of contracts comes further down the line in the sales process, after the buyer has spent money on surveys, paid for searches, and arranged a mortgage, buyers can often find themselves out of pocket if they are gazumped later on in the process.
The implications of being gazumped
The implications very much depend on your situation and how far along in the process you are before being gazumped. It is better to be gazumped early on in the sale, when costs associated with property purchases are low, than later on when you can really stand to lose out substantially, both in time and costs.
Being gazumped around the 3-to-4-month mark can mean you take a huge financial hit, losing out on survey and conveyancing costs, mortgage arrangement fees, and in some cases even moving costs. Also, if you have sought advice from a mortgage intermediary, you can add their fees to the total. According to Which?, the cost of a house sale falling through is, on average, £2,899.
What can I do to avoid being gazumped?
If you have the misfortune to experience another buyer coming in with a higher offer, in reality, there is very little you can do to prevent the seller from accepting it. However, you can take out home buyer protection insurance to insure yourself if it happens. So if the sale falls through because the seller accepts a higher offer or changes their mind, you will be able to recoup back some of the surveyor and conveyancing fees, and any other costs covered under the terms of the policy associated with the purchase.
Other tips to avoid being gazumped include:
- Being prepared – before you make an offer to buy any property, ensure you have a mortgage agreement in principle in place, a conveyancer or solicitor waiting in the wings, and any documentation you think you are likely to need to hand. These minor preparations encompass the things that can cause unnecessary delays.
- Move swiftly – Once contracts are exchanged, the sale is legally binding, so you want to try to get to that position as quickly as possible. By keeping in regular contact with your conveyancing solicitor or mortgage provider, you can keep the pressure on and make sure your case doesn’t fall by the wayside. Also, ensure you respond quickly to any requests for information.
- Ask the seller of the property to take it off the market – it is unlikely a seller will be keen to do this, but it may be worth asking the question. If the property is not being advertised, there is less opportunity for a higher offer to be made. Think about offering something in exchange to show your commitment to the purchase, perhaps getting a survey done within a certain timeframe of the offer being accepted, for example.
- Get to know your sellers – If the seller can see you are a serious buyer who genuinely wants to buy their property, it reduces the likelihood they will ditch you in favour of someone coming in with a higher offer. Keep the seller informed where you are in the sale process so they can see you are actively moving things along as far as possible. In reality, agents and solicitors want to avoid their clients contacting each other, but there is nothing stopping you from exchanging email addresses or phone numbers to stay in touch.
- Consider a ‘lock-out’ agreement – this is essentially a contract between seller and buyer, stipulating that the buyer has the exclusive right to purchase the property within a certain agreed timeframe. The seller must be willing to sign the agreement, but it may help to prove to them that you are a serious buyer. This type of agreement appeals to sellers that have previously had a sale fall through or who want to move fast. Of course, such an agreement needs to be drafted by a specialist, so you should speak with your conveyancer about what would be involved and any costs associated with it.
What to do if you are gazumped
If you have done your utmost to avoid getting gazumped and it has still happened, then review your finances and consider whether you can make a higher counter offer and gazump the gazumper. Although you should take care not to overstretch yourself financially in your desperation to win your dream house, as you will pay for it later with higher monthly mortgage payments. And anyway, you could always find yourself gazumped for a second time.
If you can’t make a higher counteroffer, there is really only one thing left you can do — and that is to sell yourself. Highlight everything to the seller that works in your favour, whether you are a first-time buyer with no onward chain or flexible about a moving date, explain to the seller how much you love the property, want to make it your family home, essentially anything you believe appeals most to them.
What about a ban on gazumping?
Eighty per cent of people surveyed by Market Financial Solutions (MFS) claim they would back a ban on gazumping, and of those over the age of 55, a whopping ninety per cent supported it.
In October 2019, the government considered enacting legislation to tighten up the rules around gazumping, however; the initiative was later scrapped because of concerns about being anti competitive.