Gazumping occurs when a buyer has had an offer to purchase a property accepted by the seller, but before the sale is completed the seller accepts a better offer from another buyer.
It can be a crushing disappointment to lose out on a property you had your heart set on, and for which you thought you had made a binding offer to buy. In the worst cases, gazumping can also leave the unfortunate would-be buyer out of pocket to the tune of thousands of pounds in non-refundable survey costs, conveyancing fees and mortgage arrangement fees.
Is gazumping legal?
As unfair as it might feel when you’re on the receiving end, the truth is that gazumping is a perfectly legal aspect of the property-buying process in England and Wales. The reason for this is that an agreement to buy or sell a property doesn’t become legally binding until written contracts are exchanged, and until then neither party can be held to a prior verbal agreement.
When buying property in England and Wales the exchange of contracts between your conveyancer and the seller’s solicitor comes relatively late in the process – after you have arranged for a property survey, your conveyancer has conducted the necessary searches and you have received your mortgage offer. This means that there’s typically a delay of at least several weeks between the seller accepting your offer and that agreement actually becoming legally binding.
Within this period, the seller may accept an offer from another buyer in preference to yours. This is usually because a higher purchase price has been offered – although this is more likely to happen when there is a strong property market with lots of demand driving house prices up. The estate agent is obliged to pass on all offers, and of course prefers higher offers (with commensurately higher commissions). It is also not unheard of for the buyer to claim at the last minute that there is a higher offer, whether there is one or not, just to see if he can squeeze a little extra out of you.
Strictly speaking, you can be gazumped if the seller decides to reject your offer in favour of another buyer’s for any reason – it doesn’t have to be for an offer of more money. For example, if you are experiencing delays with the conveyancer or your mortgage application, the seller may decide to accept an alternative offer from a buyer who already has a mortgage offer in place, in order to facilitate a quicker sale.
What can you do to avoid gazumping?
It’s unlikely that you will have all the elements for the purchase in place when you first make your offer. There are some checks that you will want to carry out first. You will probably want to arrange a survey, for example, and this takes time. The quicker you are at getting these complete, the less opportunity there is for gazumping.
Mortgage in principle
One obvious thing to sort out before you even start looking at properties is a ‘mortgage in principle.’ This is a conditional offer made by a mortgage lender that they will ‘in principle’ give you a loan up to a specified amount, provided certain conditions are met. Even though there will still be hoops to go through concerning the property in question, having a mortgage agreed in principle will speed things up a lot.
Similarly, having a found a conveyancing solicitor you want to work with in advance will also help to speed up the process, so it is worth having a look around and getting quotes from property lawyers. As any payments to the seller will be made through the conveyancing solicitors, it will also help if you are very prompt in getting the money to them. Often they hold it in advance so that payments can be made without delay.
Having a surveyor in mind means you can make that call and organize a survey as soon as you are ready to proceed. You can get quotes from Chartered Surveyors for a HomeBuyer Report and a Building Survey here at reallymoving.com.
Off the market
Assuming you have everything lined up and ready to go when you make your offer, what else can you do? Ask that the property be taken off the market as part of the offer. The seller should be willing to do this, especially if they know that you are serious and ready to move quickly. While sellers are under no obligation to take a property off the market, they can often be surprisingly amenable to this, particularly in areas with a fairly flat housing market.
Lock in agreement
A lock in agreement (sometimes called a lock out, preliminary or exclusivity agreement) is a binding agreement in which the seller agrees not to negotiate with any other parties within a fixed period, allowing the buyer to arrange their mortgage etc. without fear of being gazumped.
The way these normally work is that both buyer and seller agree to pay a deposit (eg 2% of the property price). If either side tries to back out of the sale or change the price without good reason, their payment is forfeit to the other party. The written agreement should list those things which would allow for an alteration, such as problems with the survey. The exclusivity granted in such an agreement is for a limited period, usually about 10 days from receipt of the contract.
Provision should be made for either side delaying sending paperwork. It stands to reason that such a document will cost some money in legal fees, but you may decide it is worth it for the peace of mind. This may also be something you want to consider when selecting a solicitor.
Lastly, it is possible to buy insurance which would pay you an agreed sum to cover losses in the event of being gazumped. Of course, it is not possible to be entirely sure you won’t be gazumped, but if you go in well prepared you can minimise the risks.
Stopping gazumping for good
The Communities Secretary, Sajid Javid has announced a call for evidence to improve the experience of house buying and selling, making it 'cheaper, faster and less stressful.' One of the main focuses of the intended overhaul is gazumping, with ministers discussing ways to make it less likely. Whether that involves new types of lock in agreements, moving the point at which the sale becomes binding, or streamlining conveyancing and surveying processes, we will have to wait and see.
Updated October 2017