Should Buyers Be Afraid of Gazumping?
Gazumping is a term describing a situation whereby a seller accepts a better offer from another buyer before completing the sale.
Sometimes we hear rumours that gazumping is illegal. Unfortunately, this is not true. Gazumping is a perfectly legal part of the property-buying process in England and Wales. This is because an agreement to buy or sell a property doesn’t become legally binding until you exchange written contracts. Until then, you only have a verbal agreement.
Gazumping can be a stressful situation for buyers to be in. You may have your heart set on a beautiful property and then the sale comes crashing down. You may also be part of a chain that breaks down and must move your move date back.
It can be a particularly painful situation if you lose money as a result. Sometimes buyers can be left out of pocket by non-refundable survey costs, conveyancing fees and mortgage arrangement fees.
How does gazumping happen?
As we mentioned, an agreement to buy or sell a property doesn’t become legally binding until you exchange written contracts. Due to having a property survey undertaken, your conveyancer carrying out the necessary searches and you receiving your mortgage offer, there can typically be a delay of several weeks between a seller accepting your offer and contracts being exchanged.
Within this period, other buyers may make a better offer on the property which the estate agent has to pass on. These preferable offers are not always better in terms of financial value. They may be to enact the transaction faster, or not have the pressure of a chain. Gazumping can happen when a seller decides to accept another buyers offer for whatever reason.
How to avoid being gazumped
Unfortunately, there are certain things that won’t happen until you have decided to make an offer, namely the property survey, conveyancer searches and mortgage offer. But you can help keep the time between making an offer and the contract exchange to a minimum. Ways to do this include identifying a conveyancing solicitor and surveyor in advance as well as acting quickly at each stage, providing all the information the different parties require. It also a great idea to have a mortgage agreed in principle.
There are also a couple of tactics you could use to help add more security to the deal ahead of the exchange of contracts. Firstly, you could ask the seller to take the property off the market as part of your offer. There is no obligation for them to agree, but it isn’t uncommon for them to respect this request, especially if they’ve struggled to receive offers in the first place.
Secondly, you could try to put in place a Lock-In Agreement. This is a binding agreement that usually sees both parties put up a deposit. If either party attempts to change the deal or back out completely then the other side takes their deposit. They can cost in legal fees to set up, but you might feel it is worth the cost for the security.
Finally, there is also insurance you can take out to protect yourself against gazumping. These policies agree to pay you a set fee if you are gazumped.