If you’re a house buyer, simply getting your purchase across the finish line can be a challenge. Official figures estimate that although there are around one million home sales a year in England, between a quarter and a third of all transactions fail, at an average cost of around £700.
One of the biggest problems facing home buyers in England and Wales is ‘gazumping’. But what is gazumping? When does it happen? And how can you avoid being gazumped? Keep reading for answers to these questions and more.
What is gazumping?
Gazumping comes from the Yiddish word ‘gazump’, meaning to steal or cheat. The term refers to the situation where a seller accepts your offer for their residential property, only to then accept a higher offer from another buyer. In this case you as the first buyer have been ‘gazumped’.
Gazumping is considered unethical, but it isn’t illegal. This is because verbal agreements are not legally binding, and a contract needs to be in writing before it can be enforced.
How does gazumping work?
Here’s an example. You make an offer for a property of £150,000 which is verbally accepted by the buyer. You begin the process of getting your mortgage arranged, instructing your solicitors, and perhaps even arranging a valuation on the property.
Later, another buyer enters the process and makes a bid of £160,000 for the property. If the seller accepts this offer then you have been ‘gazumped’.
A second and less common scenario is where a seller suddenly demands a higher price for their property just before you exchange contracts. By this time, you’re likely to have incurred a lot of expenses – legal, valuation and search fees – and so you may still go ahead at the higher price rather than withdraw.
When does gazumping happen?
Gazumping can happen anytime during the buying process. Typically, it is more prevalent in a ‘seller’s market’ – where there is a shortage of property to buy. In this scenario, a seller can raise the asking price at the last minute after agreeing to a lower one earlier on.
Gazumping was most common in the property booms of the mid-1980s and the early to mid-2000s.
How you can avoid gazumping
There are five steps that you can take to reduce the risk of gazumping:
1. Develop a good relationship with the seller
If you can develop a good relationship with the vendor then they may be less inclined to accept another offer for the property. If they are keen to sell then they might want to ensure the process moves quickly. Keep both the seller and the estate agent regularly updated with progress so they know you’re moving towards exchange of contracts and completion.
2. Ask the vendor to take the property off the market
If you have made a good offer then you can ask the seller to remove the property from the market. Ask the estate agent to list the property as ‘under offer’ on their website (and other property websites).
3. Check whether the estate agent has a gazumping policy
Ask whether the estate agent has a policy on gazumping. Some agents don’t allow this practice, meaning they would have to turn down any subsequent offers after yours has been accepted.
You could also ask the sellers to sign an agreement confirming that they won’t accept any further offers.
4. Make sure you’re ready to move quickly
Sellers are more likely to accept another offer if you’re in a chain or it’s likely to be a few months before you can move. If there are delays in the process and your vendor wants to sell quickly, they might look elsewhere for a buyer.
Try to be in a position where you’re ready to move quickly. Make sure you’ve sold your own home, and that your mortgage is approved. This means you can move fast, giving the sellers less chance to accept another offer.
5. Exchange contracts as soon as possible
Once a contract is signed, both you and the seller are committed to the transaction. So, instruct your solicitor to exchange contracts as soon as you can.
What is gazundering?
Gazundering is the opposite of gazumping. Here, a buyer will wait until their purchase is almost ready to complete before withdrawing their offer and making a lower one. If you’re in a chain, or you’re keen to sell, then you may be forced to accept the lower offer otherwise the entire sales process could collapse.
Gazundering can be hard to deal with if you don’t have a ‘reserve’ buyer. There may be genuine reasons for a lower offer – perhaps the valuation report threw up some issues – but you should always establish the reasons for the lower offer.
You are within your rights to refuse the lower offer and you may be able to call the buyer’s bluff.
How gazumping might be tackled
The Daily Express reported in late 2017 that the government is considering changing the law to outlaw both gazumping and gazundering.
The Department for Communities and Local Government has launched a consultation on the issues and there could be financial penalties for anyone engaging in either practice.
Communities Secretary Sajid Javid says: “Buying a home is one of life’s largest investments. If it goes wrong it can be costly. We’re determined to take action to make the process cheaper, faster and less stressful. This can help save people money and time so they can focus on what matters – finding their dream home.”
The Express reports that under the proposals both sides would pay a percentage of the house price into a deposit scheme at a midway stage, and risk losing that money if they pull out. A similar third-party system, known as ‘escrow’, already operates in the US.
Why is there no gazumping in Scotland?
Gazumping isn’t generally a problem if you’re buying a home in Scotland. This is because that, in many Scottish cities, properties are marketed and sold by solicitor/estate agents. Solicitors are bound by the rules of the Law Society of Scotland who bind all legal firms to follow anti-gazumping rules.
These rules state that once a solicitor/estate agent has agreed to accept an offer from a property buyer then that solicitor/estate agent cannot then accept an offer from another buyer.