If you've ever been gazumped during a house hunt, you'll know the feeling of disbelief and frustration, probably followed by upset. The word gazumped may seem quite a funny one but it's not a pleasant experience, and it's anything but funny if it happens to you.
In this blog we cover the topic of gazumping & how many people in England and Wales are gazumped, its financial impact, and how many would consider gazumping others, amongst other things.
You can quickly navigate through the article by using the section below:
- What is gazumping?
- Is an accepted offer on a house ever legally binding?
- What's the research?
- How many people had been gazumped?
- Is property gazumping legal?
- What are the implications of gazumping?
- Is gazumping unethical?
- Can we ban gazumping?
- Do estate agents allow gazumping?
- How do I stop being gazumped?
- Would you gazump someone?
The action of gazumping is when a person is a perspective buyer and has an offer accepted verbally on a property by the selling party, but someone then offers higher and completes the purchase.
It's not to be confused with gazundering, another person can sweep in any time before exchange occurs, as it isn't until then that the new buyer legally owns the property. In most cases what happens is that a higher offer is made during the process and the seller simply wants to maximise the amount they will get for their property.
Sometimes the seller will offer you the chance to meet the offer made, but this will depend on how quick you've been throughout the process so far & how quickly the new potential buyer can move.
Unfortunately not, once an offer is accepted it is not legally binding, the only point in which it becomes legally binding is when the contracts are exchanged. It means that the buyer, or seller, can back out of the sale at any point.
It is slightly different if you are buying in Scotland, as a formal offer is submitted through your solicitors, and once that is formally accepted will be part of a legal contract, known as "missives", and at that stage it becomes legally binding.
Market Financial Solutions (MFS) questioned over 750 home owners who had purchased property in the UK over the last 10 years in order to find out how many had been gazumped, why, and how it effected them. Although that is a relatively small sample size, their research and finding where worryingly high, more people than you may have expected have been subject to gazumping and subsequently lost out on the home.
Of those surveyed who had bought a house in the past 10 years, 31% had been gazumped and lost out on a home. That's nearly a third! London experience it worst, where 47%, almost half, had been gazumped. This is easily explained by the stronger competition in the property market in London.
Yes, unfortunately as it's not legally binding to simply have an offer accepted in England & Wales, property gazumping is legal until the point in which the contracts are exchanged. Prior to this happening, even if you've instructed solicitors, paid for searches, done a RICs survey or even bought furniture, you can still be gazumped, legally.
The implications are different for everyone, and some are more severe than others. Of course, the buyer loses out on the property they wanted. However, there can be lots of money lost if the purchase had progressed quite far. For example, a buyer pays for conveyancing, surveys and mortgage advice. It's not just money that's lost, time is wasted too. It can take around 3-4 months to reach exchange and completion on a home, and if a buyer is gazumped at the last minute they'll be back to square one.
It was found that 39% of buyers paid intermediary fees before completing on a purchase. Of course, they are still open to being gazumped at this stage.
Which? has found that £2,899 of the buyer's money on average is wasted when a purchase falls through.
These statistics apply to England and Wales. Things work differently in Scotland, where exchange occurs shortly after a verbal agreement on price, so gazumping has a much smaller window to occur.
If you are considering gazumping someone, it is an unethical practice, sadly this doesn't stop it happening. It's not something you should take lightly if you are planning on doing something like this, when you gazump someone you are costing them financially as they may have had surveys or solicitor costs to contend with.
Does that mean you shouldn't do it? Well the housing market is very competitive and you should always look out for yourself. If it's your dream property, and you're getting a good price & can live with the fact that you're potentially causing heartache and financial stress on someone then you might consider it.
Of those surveyed, 80% claimed they would back the banning of gazumping in England and Wales. This percentage increased for older respondents; where they were 55 or over in age, 90% said they would support the ban of gazumping.
In October 2019, a new rule for buyers and sellers being bound to a deal was considered. It's called the reservation agreement, and the government could be trialling it this year.
It's not encouraged by reputable estate agents, it's of very little benefit to them as they might be on a fixed fee or even if they are on a percentage it likely only makes tens of pounds difference and might take longer for the sale to go through.
That being said, estate agents are legally obliged to pass on all and any offers to the vendor, so no matter what, if someone is looking to gazump through an estate agent, they have to present the offer.
There are quite a few ways that you can avoid being gazumped, here are a few tips on how exactly you can prevent it happening:
Be as quick as you possibly can
If your quick and the seller can see that you are actively doing all you can to ensure that the sale is quick, then they may not want to take the risk of choosing another buyer that could mean their sale falls through. Obviously being quicker and reducing the time from the agreed offer to completion means that there is also less chance of someone seeing the property over that time.
Ensure that the property is taken off the market
One of the first thing you should do when you have an agreed offer is to try and make the estate agent take it off the market as soon as possible, remove it from Rightmove & all other popular property portals and this will reduce the chance of people coming across it, which massively reduces the potential pool of gazumpers.
Get a lock in agreement
This is a binding agreement in which the seller agrees not to negotiate with other parties for a specific period, the way this typically works is that the buyer and seller agree a deposit % of the property price so if either party backs out without good reason they forfit this.
This is also beneficial from the sellers point of view, because it means the buyer is more commited to completing the process.
You can actually buy insurance that covers any losses if you get gazumped. It won't stop it happening, but it will mean that you are covered from a financial point of view.
Out of the survey, 43% said they wouldn't be against gazumping someone, and 66% said it would be due to the lack of housing and increase in competition.
Over one third of people who had one or more purchases fall through, said that the reason was them or someone else in the chain not getting their mortgage approved in time. This figure is higher for younger house buyers (aged 18 to 34) where it sits at 49%, nearly half.