Buying a property is often considered to be one of the most important decisions you will ever make. That’s why its important to be aware of any potential issues that you may encounter during the process. We are very pleased to welcome Girlings Solicitors to our blog today to share their expertise on Gazumping.
For many people, the process of buying a property is both an exciting and stressful experience. It can take a long time to find your dream home and negotiate with the seller to get your offer accepted – and to then lose the property at the last minute due to another buyer’s offer can be extremely disappointing.
Unfortunately, the short supply of affordable properties and high demand in today’s housing market mean that gazumping – whereby a property seller disregards a previously accepted offer in favour of another – is always a potential risk.
It’s perhaps unsurprising that many buyers are keen to know what they can do to protect themselves against this unpleasant scenario. In this article, we will provide an overview of gazumping – what can happen, whether it is legal, and what you can do to guard yourself against it.
What is gazumping?
The Oxford English Dictionary gives the origin of ‘gazumping’ as the Yiddish word ‘gezumph’ – literally meaning ‘overcharge’.
The word has been part of the English language since the 1920s. It describes a property situation where a seller accepts a buyer’s offer only to later accept another, higher offer from another party and drop the first buyer.
It is also used to describe the unscrupulous practice of inventing fictitious higher offers. This is done to try to convince the buyer to raise their offer to match, even though it was already accepted at a lower amount.
For buyers, this can be a very expensive – not to mention stressful – problem. In some cases, they can lose thousands of pounds on surveys and fees for a property purchase that never actually goes through (in addition to the intense disappointment of losing out on their dream home at such a late stage).
Is gazumping legal?
Although gazumping is sometimes thought to be illegal, there is currently no provision in the law governing England and Wales to prevent the practice – unfortunately leaving victims with no legal recourse. However, it should be noted that, in Scotland the law is slightly different. For more information, click here.
Prior to the exchange of contracts, the sale isn’t legally binding, meaning that either party can pull out with no repercussions. This has given rise to a related concept known as ‘gazundering’, where the buyer lowers their offer at the last minute to try to force the seller to accept a worse deal than was originally agreed upon.
By contrast, the exchange of written contracts locks both the buyer and seller into the sale. Neither party can then back out without incurring heavy penalties, such as the forfeiture of a deposit.
However, the legal climate may change in the future. There have been indications for several years that the government might consider updating the law to limit gazumping and gazundering tactics.
How can you avoid getting gazumped?
One way of decreasing the likelihood of getting gazumped is to do everything in your power to ensure that things proceed quickly. The longer the transaction takes, the more likely it becomes that another buyer will appear with a higher offer.
Sometimes, a seller who accepts a gazumping offer may not be motivated solely by the prospect of extra money. For instance, they might be frustrated with the slow progress of a transaction, and open to accepting a second offer from another buyer who can act more quickly (perhaps due to not being in a chain or being able to pay cash).
Property transactions will often be slow for reasons that are out of your control, but you can still ensure you fulfil your part of the proceedings quickly. This may mean sending paperwork back promptly, or organising surveys and conveyancing without delay. It could also speed things up to find a conveyancing solicitor and surveyor in advance of the transaction – as well as getting a ‘mortgage in principle’.
A mortgage in principle is an agreement (subject to financial background checks and a valuation) provisionally stating that the lender is prepared to lend you a certain amount of money. This may help to reassure the seller that your offer is serious and that you have your mortgage arrangements in order. However, a mortgage in principle is not a guarantee of a mortgage offer – there are generally additional checks required to reach full approval.
Another approach is to ask the seller to take the property off the market after accepting your offer. They may be wary of doing this for fear of gazundering, and they are under no obligation to fulfil your request, but it doesn’t hurt to ask.
After the acceptance of your offer, the property will normally stay on the market labelled as Sold STC (Subject To Contract). This doesn’t prevent other buyers from continuing to submit offers, and the seller’s estate agent is legally obliged to pass them all along to their client.
Further precautions against gazumping
Some buyers find it helps to try to establish a good relationship with their seller before the exchange of contracts. Many people are as good as their word, and if your seller likes you they may be less inclined to renege on their acceptance of the offer. A good rapport with your seller may also inspire them to be more active in helping the sale to go through quickly.
Some estate agents have policies against gazumping, and encourage sellers to sign an agreement promising not to accept more than one offer. It may be worth finding out if any of your local agents have this policy – although it should be noted that the seller may be using more than one agent.
Although it won’t prevent gazumping, insurance can help to protect you against its financial consequences. Home Buyer’s Insurance is a relatively inexpensive purchase that will cover you against the losses of gazumping and other potential property-buying pitfalls.
Ultimately, the current legal climate means that the risk of gazumping can never be fully mitigated. For buyers in today’s market, the best policy is to bear it in mind as a possibility, and to take sensible precautions where appropriate.
Keeping the sale moving along as quickly as you can, asking the seller to take the property off the market, and taking out insurance are all good strategies to help ensure that your offer stays on the table – and that your purchase goes ahead with no major setbacks.
This post was contributed by Girlings Solicitors – expert property solicitors in Canterbury, Ashford and Herne Bay. With nearly 140 years of experience providing personal, business and not-for-profit legal services, Girlings is one of the largest and oldest law firms in Kent.