Gazumping describes the process whereby a property seller accepts a purchase offer, then has a change of mind and decides to accept a better offer from another buyer.
While this may result in an advantageous situation for the seller, the buyer who has been gazumped suffers disappointment, inconvenience and in most cases unrecoverable costs too.
It has to be said that gazumping is not against the law since buying or selling a property in England and Wales doesn’t become legally binding until written contracts are exchanged.
Until then, both the seller and the buyer are free to change their minds and pull out of any agreement should they wish to do so.
There is usually a delay of several weeks if not months between an offer being accepted and contracts being exchanged.
The time is necessary so that your conveyancing solicitor can conduct the necessary searches and checks, your mortgage offer can be finalised and you have the opportunity to arrange for a property inspection and survey.
Gazumping is on the rise
Many industry experts are warning that gazumping is on the rise, particularly in London. If you are a buyer who has been gazumped, chances are that another buyer came forward with a higher purchase price – but that doesn’t have to be the reason.
The seller can reject your offer in favour of someone else’s for any reason.
Perhaps you experienced difficulties with your mortgage application, or there was a delay in the sale of your property, and a cash buyer came along who could proceed immediately?
Whatever the reason, if you had your heart set on buying a property and lose out to another buyer, it can be a huge blow. So, what can you do to avoid being gazumped, and potentially wasting thousands of pounds in conveyancing, mortgage arrangement and survey fees?
1) Be prepared to act swiftly
It goes without saying that the shorter the time between your offer being agreed and contracts being exchanged, the less opportunity there is for gazumping to occur.
This doesn’t mean you should rush things through at the expense of due diligence, but it does mean that you ought to proceed with a sense of purpose and direction.
Obviously, you need to allow enough time for a property survey to be carried out, and the time it takes for local searches to be completed may in fact be out of your solicitor’s control.
But the more elements of your purchase are already in place when you make the offer, and the quicker you respond to requests for information from your solicitor or the estate agent, the smoother the entire property transaction is likely to proceed towards a desirable outcome.
2) Have your finances in place
Unless you are a cash buyer, having a mortgage in place when your offer is accepted will put you in the strongest possible position as far as the seller is concerned.
In fact, your current financial position should be one of the first things the estate agent will ask about in order to establish your credibility as a buyer.
Aim to have a mortgage in principle agreed; this is a conditional offer made by your lender that lets you borrow up to a specified amount. Once you’ve chosen your property, the mortgage can be then be confirmed and the fund transfer date authorised.
3) Pre-assemble your professional team
Doing as much homework as you can will allow you to hit the ground running once your offer is accepted, which can pay huge dividends.
This goes for getting your finances lined up as well as getting quotes from conveyancing solicitors, property surveyors and even removal companies. Assemble your team well in advance so that you’re able to proceed without delay.
Crucially, don’t make the mistake of thinking a simple mortgage valuation report will suffice.
Rather than skipping the survey, it is essential to take independent professional guidance:
“Commissioning a home survey is a simple, economical way to avoid unpleasant and perhaps costly surprises after moving in. In some cases, a surveyor’s report may even enable you to renegotiate the purchase price”, Brian Gale Surveyors.
4) Get the property taken off the market
It is normal estate agents’ practice to stop marketing a property once an offer on it has been accepted, and marking it as SSTC (sold subject to contract).
Do double check that this has indeed happened, or make it a condition of your offer.
That way, and assuming both the estate agent and the seller play by the rules, no-one else will be able to view the property, which minimises potential interest by competitive buyers and your chances of being gazumped.
5) Secure a lock-in agreement
You could try to make the purchase agreement legally binding before contracts are exchanged is by drawing up a lock-in agreement.
This is a deal made between the buyer and the seller for a fixed period of time guaranteeing exclusivity.
Typically, both parties agree to pay a deposit of, say, 2% of the purchase price, which will be forfeited if either side chooses to back out of the transaction.
Last year, Sajid Javid, then Housing Secretary, suggested this type of voluntary reservation agreement as part of an initiative to reduce gazumping problems in the housing market.
However, doubts remain over the practicality of such clauses and whether they are in fact legally enforceable.
6) Take out insurance
Finally, it is possible to take out home buyers’ insurance, which includes cover for being gazumped. If you want to make absolutely sure you won’t be out of pocket in the event of your property purchase falling through, this will take away the risk.