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What is Gazumping?
The definition of gazumping
According to The Cambridge Dictionary, to gazump is to ‘refuse to sell a house that you own to someone you have agreed to sell it to, and to sell it instead to someone who offers to pay more for it’.
To use a real-world example, let’s say you have had an offer accepted on a house and you are in the process of buying it. Somebody would ‘gazump’ you if they came in and offered more than you had, and the seller then stopped the process with you and instead started selling it to them.
Essentially, you are back to square one and back on the search for the perfect home again. And the most frustrating aspect of gazumping is that it can happen at any time before you’ve exchanged contracts.
Why does gazumping happen? Well in most cases it’s as simple as the seller wants to make as much money on the property sale as possible however, it is seen by some as a solution to an unnecessary long sale. For example, if the seller feels you are taking too long to have a survey, sell your home, or if your solicitor isn’t returning paperwork on time, the seller may decide to reject your offer in favour of one from a buyer who is in a better position to move more quickly.
Certainly from a buyer’s perspective, it’s not an ideal solution and can cost a lot of time and money, so how can you avoid it?
Is gazumping legal?
Unfortunately, yes, gazumping is legal. The agreement between you and the seller does not become legally binding until contracts have been exchanged. That’s why you’ll see property listed as ‘Sold STC’ which means an offer has been accepted but the sale is still ‘subject to contracts’ being agreed and exchanged.
Remember, exchanging contracts comes nearly at the end of the buying process. By this point surveys have been paid for, mortgages arranged, and conveyancer fees are paid too. That’s why gazumping is best avoided, because otherwise a buyer is looking at a hefty price tag without actually receiving the goods.
How to avoid gazumping
Although it is legal and does happen, you can put the following in place to avoid it happening to you.
Home buyer protection insurance
There’s very little you can do to stop the seller accepting a much higher offer than yours, but if you take out home buyer protection insurance, you’ll be able to claim back some of your conveyancing fees, survey fees, and any other costs you may have had to pay out.
Have your mortgage in principle in place
Don’t make any offers until you have your mortgage agreement in principle in place. It’s also best practice to have a solicitor lined up and all the necessary documentation to hand. Essentially, the more prepared you are, the smoother the process and the less likely you are to have to fend off a higher offer.
Move the process along as quickly as possible
As we said, once contracts are exchanged, the sale is legally binding, so get to that part of the process as quick as you can. You can do this by keeping in regular contact with your broker and solicitor to chase documents, answer questions the seller may have, and essentially keep the pressure on to complete the sale.
Ask for the property to be taken off the market
If the property isn’t on the market, it’s far harder for anyone else to come in with a higher offer. Sellers are not always keen to do this but it’s worth asking. You could offer to have a survey completed as soon as possible to show you are committed and increase the chance of them saying yes.
Build a relationship with the seller
If you are chatting to the seller, keeping them updated on where you are with the paperwork etc. there’s a much lower chance of them rejecting your offer in favour of another. It’s also a great way to keep the process running smoothly as you can check in with each other on where things are at with the process.
Lock in agreement
A lock in agreement (sometimes called a lock out agreement) is a contract between the seller and the buyer stating that the buyer has the exclusive right to buy the property within a certain time period. This prevents any other offers being considered until that time is up. This sounds great, however, the seller has to be willing to sign this and you will need to discuss the cost of drawing up the agreement with your solicitor. But it does prove you’re serious about completing the purchase and may work well if the seller has already had a sale fall through or wants to move fast.
Estate agents and gazumping
You might hear that some estate agents actively encourage gazumping to make more on the sale themselves. However, remember that even after the seller has accepted an offer from one buyer, the estate agent is legally obliged to pass on any offer they receive. If this offer happens to trump the initial accepted offer, then gazumping could be inevitable.
As a buyer, if you have had your offer accepted and the agent comes to you with news of a better one, ask to see proof of it in writing. Then you can decide how you wish to proceed.
What happens if you are gazumped
Despite doing everything you can to avoid getting gazumped, it can still happen. Here are some options available to you:
- Review your finances and consider whether you can gazump your gazumper with a higher counter-offer. Remember to always be mindful of how far you can truly stretch your finances and know that you could well be gazumped again.
- Highlight absolutely everything that works in your favour to convince the seller to stick with your offer. After all, it’s not always about money: you might be a first-time buyer with no chain and utterly flexible on moving date or the higher offer may not have a solicitor lined up or even a mortgage in place. Do whatever you think will appeal most to your vendor.
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