When looking to buy a property, it’s tempting to think that once an offer is accepted, the work is all done. Be warned, you haven’t quite crossed the finish line. The house buying process can be long and difficult, filled with hurdles where a deal might fall through. One of the most dreaded possibilities is ‘gazumping’ – here, we’ll take a look at what it is, how it can scupper your plans and what you can do to avoid it.
What is gazumping?
Gazumping is the word used to describe an occurrence where another party comes in and makes a higher offer on the house you have had an offer accepted on. If that higher offer is accepted, you get pushed out of the purchase and find yourself back at square one – you’ll have to start searching all over again.
This can happen at any point up to the exchange of contracts. Generally speaking, it happens because a higher offer appears and the seller wishes to maximise the amount of money they make from selling the property. However, timing can also be an issue – if, for example, you take too long to have a survey carried out, or to sell your own home, the seller may lose patience and decide to go with a buyer who is in a position to move ahead with the deal swiftly.
It can be bitterly disappointing for a buyer to lose out on a property they thought was in the bag. The acceptance of an offer is not binding, and in the worst cases, being gazumped can leave you empty-handed after having paid thousands of pounds in non-refundable conveyancing fees, survey costs and mortgage arrangement fees.
Is gazumping legal?
Though it will feel incredibly unfair when you’re on the receiving end, the reality is that gazumping is entirely legal in England and Wales. This is because an acceptance of an offer is not a legally binding agreement until the written contracts are signed and exchanged – until then, neither party can be legally held to a verbal agreement.
When buying property in England and Wales, the stage of exchanging contracts between the two parties’ solicitors comes quite late in the process. Before it can happen, you must have arranged a property survey, had your conveyancer carry out the necessary searches and have received your formal mortgage offer. This means there is usually a delay of several weeks between having an offer accepted and making that agreement legally binding.
During this period, the seller is at liberty to accept an offer from a different buyer instead of yours. It usually happens because a higher offer is made, but this usually only happens when the property market is strong and demand is driving prices upwards. The estate agent has an obligation to pass on all offers and, naturally, will be keen on higher offers that boost their own commission. It is also not unheard of for the seller to state at the last minute that a higher offer has been made, in an attempt to make you increase your offer to avoid losing out.
What can you do to avoid being gazumped?
Act fast
It is very unlikely that you’ll have all the elements of the purchase in place at the point of making your offer. You will need to carry out certain checks first, such as arranging a survey, and these things take time. The quicker you act on arranging and completing these steps, the smaller the window will be for gazumping.
Consider insurance
If another buyer appears with a significantly higher offer than yours, there is little you can do to prevent the seller from accepting it. You can, however, take out home buyer protection insurance to give yourself a financial safety net. If a sale falls through due to gazumping, you’ll be able to claim back a portion of the costs you have had to outlay like surveys and conveyancing. It costs as little as £50 and can cover you for 120 days.
Be prepared
Before making any offers, you should have a mortgage agreement in principle. This is a con conditional offer from a mortgage lender that they will offer a loan up to a specified amount ‘in principle’, provided you meet the necessary conditions. It also helps to have a solicitor lined up and to have gathered all the necessary documentation. Approaching the purchase without having prepared all these things can lead to unnecessary delays that increase your risk of gazumping.
Get to know the sellers
If you establish a relationship with the seller and they have faith that you are a serious buyer who has fallen in love with the property, the chances of them ditching you are lower. Keep them updated as you progress through the process so that they can see you are making an effort to move things along. Agents and solicitors tend to discourage clients from contacting each other directly but there’s nothing to stop you exchanging email addresses or sending a thank you card.
Ask that the property be taken off the market
Sellers are not always happy to do this but it’s worth asking anyway. If the property is removed from websites and stops being advertised, the chances of gazumping will decrease considerably. You may find that offering something to demonstrate your commitment might make the seller more willing – consider having a property survey undertaken as quickly as possible to inspire confidence.
Get a lock-out agreement
A lock-out agreement is a contract made between the buyer and the seller which states that the buyer has the sole right to buy the property within a predetermined time period. Not all sellers will be willing to sign this agreement, but it can serve to help prove your commitment to buying the property.
It will be appealing to sellers who have already had a sale fall through and wish to move forward quickly. Your conveyancing solicitor will be able to tell you what would be involved in drawing up an agreement, including cost.
Look out for estate agent tricks
Some unscrupulous agents may say that a higher offer has come in at the last minute, when it hasn’t, in order to make you feel like you need to increase your offer to avoid being gazumped.
If the agent contacts you with unexpected new of a higher offer, request proof of the offer in writing. If the offer is genuine, don’t panic and increase yours immediately. You should have established a maximum price you can afford from the outset, and you must stick to it, even if the agent is attempting to make you panic.
What to do if you are gazumped
If you’ve tried everything you can to avoid being gazumped but still find that a higher offer comes in, the first thing to do is review your finances. You may be able to gazump your gazumper with an even higher counter offer. However, you should be very careful not to over-stretch your finances just because you really like the property. And remember, even if you do increase your offer, you could still be gazumped again.
If increasing your offer is not an option, the only thing you can do is try to sell yourself to the vendor. Identify everything that works in your favour and highlight that to the seller.
Perhaps you’re a first-time buyer with no chain or you’re highly flexible on the moving date. Email, phone or write to the seller and express how much you love the property, or want to make it a beloved family home. Anything you think will be appealing to the vendor, make sure you get it across to them.