Many people are gazumped while buying their dream home. But is gazumping illegal? Residential property specialist Kayleigh Curtis examines this unfortunate practice and explains how to reduce the chances of it happening to you.
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You’ve made an offer on your dream home. The agent calls and confirms the seller’s acceptance. The nervous tension evaporates, and it’s time to celebrate.
But as many of us discover, that call does not mean you are home and dry. Unfortunately, you remain exposed to the dreaded practice of gazumping until exchange of contacts.
What is gazumping?
Gazumping is when your seller accepts an offer from somebody else on the property you are buying. Weeks or months into the process, you are back to square one in your search for a new home. In addition to the disappointment and frustration, it’s likely to have wasted considerable time and expense. And with the shortage of property on the market, gazumping is particularly prevalent.
In most cases, gazumping occurs because the new offer received is higher than yours. However, it may also happen if the seller believes you are taking too long and the new buyer is better positioned to proceed quickly.
In 2019, Market Financial Solutions (MFS) published the results of their research on gazumping. Here are their key findings.
Gazumping and gazundering
Do not confuse gazumping and gazundering. Gazundering is where a buyer reduces their offer before exchange of contracts.
Is gazumping legal?
While many believe it’s morally wrong, gazumping is not illegal. The agreement between you and your seller is not legally binding until exchange of contracts. That’s why estate agents use the term ‘Sold STC’ – subject to contract.
Buyers sometimes offer an inducement in return for the seller agreeing to remove the listing. However, that only reduces the prospect of another buyer becoming aware of the property; it does not prevent gazumping.
How to reduce the chance of being gazumped
Steps reducing the prospect of gazumping include:
- Be prepared to move quickly. Before making an offer, be sure you have in place a mortgage agreement in principle and have already instructed your solicitor. Once the conveyancing process is underway, respond promptly to all requests for information and documents.
- Ask the seller to remove the property listing. This is one of the best ways to prevent gazumping, although sellers are often not keen unless you make it advantageous.
- Get to know your sellers and keep them regularly informed. A seller who sees you are serious, that you love their property, and are doing everything possible to move the process along is less likely to abandon you in favour of someone else.
- Discuss a ‘lock out agreement’. This is a contract agreeing that the buyer has the exclusive right to buy for a certain period. There will be a modest cost involved in drawing up the agreement. But it may well appeal to a seller looking for reassurance that you are in a position to proceed quickly.
Home Buyer’s Protection Insurance
Taking out Home Buyer’s Protection Insurance does not prevent gazumping. But it does mean recouping at least some of your financial outlay if it happens.
Will gazumping be banned?
In the past, the government has explored possible solutions to the problem of gazumping. In the Chancellor’s Budget in 2021, they announced. “We will publish a call for evidence on how to make the process better value for money and more consumer friendly.” However, legislation is yet to materialise.
If it does, it could focus on making the house purchase legally binding at an earlier stage, possibly immediately upon an offer’s acceptance. Pulling out before exchange would mean paying the other party’s costs.
There have been calls in some quarters for a system akin to that which operates in Scotland. There, the deal is binding on exchange of missives (a series of contractual letters). This prevents both gazumping and gazundering. But this system is not universally popular in Scotland. That’s because the onus is on a purchaser to carry out all necessary checks before making an offer.
Others are pushing a system similar to that in France, where there is a 10 day cooling-off period following acceptance of an offer.
Estate Agents Gazumping Policy
While we all hope the estate agent will act honourably, it’s a sad fact that a minority do encourage gazumping. If they are working on a percentage, the higher the sale price, the higher their commission. But remember, the seller is their client, not the buyer. As such, they must achieve the highest price and put all offers to the seller.