What Is Gazumping?
Picture the scene: you’ve found a for-sale home that meets all of your needs, made an offer on the property in question and received word from the seller that this offer has been accepted. Now, you can just sit back and relax while waiting for the transaction to be finalised, right?
Unfortunately, there is usually about a three-month wait between the offer being accepted and the contracts being exchanged. During this transitional period, the survey will be undertaken, the mortgage will be arranged and numerous legal documents will be completed.
All of this can take even longer than three months, depending on how many people are in the chain of property sales, how long the conveyancing process lasts and how quickly the conveyancing solicitor meets their legal responsibilities in this process.
Worryingly, the longer this awkward halfway house – if you will excuse the pun – stage of the sales process drags on, the likelier it is that another potential buyer approaches the seller with their own, better offer for the property and the seller accepts this offer, sending you back to square one.
This manner of sneakily taking a property from under the original buyer’s nose is known as gazumping. In this article, we are going to look closer at what gazumping is, how you can avoid falling victim to it and how we could help you to accelerate the home-buying process.
What Is Gazumping?
It’s not hard to find tragic stories of gazumping in action. As revealed in research reported by This is Money.co.uk, two in five house buyers secured a property in late 2020 or early 2021 by outbidding a competing buyer after the latter had had an offer accepted but before they signed contracts.
As the research further revealed, this dubious manner of outbidding was the largest culprit for property deals collapsing during the 12-month period – and estate agents have told This is Money.co.uk that gazumping has become especially common in just the last few months.
Zara Banday, Head of Residential Property at law firm Slater Heelis told the site: “This is owing to the fact that there is limited stock on the market because of the reduction in stamp duty thresholds, and people are desperate to move to benefit from the stamp duty saving.”
While gazumping usually happens due to someone making a higher offer, it can also happen in other circumstances – for example, because the other buyer can move more quickly. Perhaps they aren’t part of a chain, and so can be more flexible with moving dates.
You should also be careful not to confuse gazumping with gazundering – which is where the buyer, before contracts are exchanged, lowers his or her offer on the property. The seller could feel forced to accept this reduced offer, lest the entire chain potentially collapse.
Of course, getting gazumped can be a very dispiriting experience – as, up to that point, you might have spent a lot of money on surveys, solicitors’ fees and travel, all in an attempt to secure the new property. Furthermore, you are unlikely to be able to recuperate all of that outlay.
Is Gazumping Legal?
Victims of gazumping have often – and very understandably – reacted with frustration, with words like “inappropriate”, “unethical” and even “unsettling” used to describe the practice. It therefore often comes as a surprise that gazumping is actually perfectly legal in England and Wales.
Estate agents in these territories are legally required to keep passing new offers for a property on to the client – even if an offer has already been accepted on that home. As a result, new offers could continue reaching the seller – and potentially tempting them – until a contract is finally signed.
Back in October 2017, Sajid Javid – at that time the Communities Secretary serving under then-Prime Minister Theresa May – announced that the Government was launching a probe into gazumping. Javid sought to spend eight weeks consulting with estate agents, solicitors and mortgage lenders.
This year, a spokesman for the Government claimed it had, since 2019, been thinking about introducing “reservation agreements” – where a commitment would be made when the sale is agreed, with a penalty set to be leveled if either side pulls out.
The spokesman explained: “We intend to trial the use of reservation agreements where both buyers and sellers make a commitment to the transaction at the point of offer to reduce the fall-through rate.
“While this work paused over the past year owing to the pandemic, we are now in discussion with the property industry about how best to restart this work and will announce further details in due course.”
How To Avoid Being Gazumped
In the wait for the Government to potentially enforce “reservation agreements”, you would – as a buyer – remain vulnerable to the threat of gazumping. Sadly, you can’t eliminate this risk, but there are a few steps you could take to significantly reduce it.
Many of these remedies can be summed up in one word: speed. For example, make sure you have a conveyancing solicitor ready before you launch any property searches – and, at this early stage, you should account for any costs you would have to incur, like survey costs.
Before making an offer on any particular home, you should also have what is called a “mortgage in principle”. While not quite constituting an actual mortgage, it would nonetheless signal to the seller and estate agent that you will be able to quickly source the required funds from the mortgage lender if your offer on the property is indeed accepted.
You could also make the seller’s acceptance of your offer conditional on them taking the property off the market. Fortunately, many sellers are perfectly willing to do this – and you might even be able to make a “lock-in” agreement with them to bar them from weighing up any gazumping offers.
However, as some sellers can be reticent about agreeing to a “lock-in” period, we would urge you to take out buyer protection insurance. That way, if you do fall prey to another buyer’s action of gazumping, you could recover at least some of the money you lost to, say, estate agent fees.
Ironically, many anti-gazumping tactics would require you to expend money early to minimise the risk of losing money to gazumping later. Striking a “lock-in” agreement would entail you putting down a sizeable deposit, while improving your offer in the event of a gazumping attempt could spark a costly bidding war. Only you can be certain what price your peace of mind is worth.
How Jordan & Halstead Can Help You
While experienced and inexperienced buyers alike can be undermined by gazumping, the latter can be especially vulnerable – as they might not have spent enough time navigating the property market to know many of the oft-cited tips and tricks for reducing the chances of gazumping.
Even if you are a first-time buyer, we can carefully guide you through various stages of the property-buying process, all the while pointing out potential pitfalls that could risk you stumbling – and, more to the point, getting gazumped.
Of course, if you have been gazumped before, the experience could have left you severely shaken – and perhaps very reluctant to reach for that next rung of the property ladder. Rest assured that, if you do enter the property market again, we can assist you in mastering various house-buying procedures you might not have got quite “right” the first time around.
When a specific property emblazoned with the words “FOR SALE” particularly catches your eye, you could use our website’s mortgage calculator to estimate the amount of funding you would need to borrow in order to purchase this home.
Meanwhile, if “gazumping” is just one piece of property-related jargon with which you weren’t previously familiar, you could consult our estate agent jargon glossary to fill gaps in your knowledge.
It bears emphasis that gazumping is, at least for now, an inevitable risk of attempting a property purchase. However, if you would like to buy a new home in any of our coverage areas, like Cheshire or North Wales, please contact us to learn about our anti-gazumping efforts.
