Our guide to gazumping and how to avoid it
December 10, 2018
In the world of property investment, there are few problems that a property buyer can face more frustrating than gazumping. Finding your ideal property takes time, money and energy, so when it is snatched away by a new bidder at the last minute, it can be hard to take.
It’s a surprisingly common issue too, especially in London. While the rate of gazumping has slowed nationally from 36 percent of homebuyers in 2017 to 35 per cent in 2018, a whopping 66 percent of homebuyers reportedly experienced gazumping in the capital over the past year. Even at the current national rate, UK homebuyers still have a one in four chance of being caught out by gazumping, which is unacceptable.
The aim of this guide is to increase homebuyers’ awareness around the dangers of gazumping, as well as explore the various ways you can avoid it. So, let’s start with the basics…
What is gazumping?
The term gazumping is used to describe a situation where a property seller accepts a higher offer from a third party even though they have agreed a certain price with a second party.
Gazumping can happen at any time before contracts are exchanged. In most cases, gazumping occurs as a result of a higher offer being accepted by the seller, which is understandable given that they want to get as much money as possible for their property.
However, you can be gazumped for non-monetary reasons too – for example, the property seller may think your surveying or conveyancing is taking too long and so decide to accept an offer from a different, speedier buyer. Property investment is a competitive industry; you need to be vigilant if you are to ensure a smooth purchase.
Is gazumping illegal in the UK?
Regrettably, the answer is no – gazumping is perfectly legal. Property sellers are fully entitled to accept and reject any offer they receive up until the point at which contracts are exchanged. In fact, many properties are advertised as “Sold STC”, meaning the seller has accepted an offer but the sale is currently “subject to contracts” being officially exchanged.
As the contract exchange typically occurs late in the sales process, buyers can find themselves in a difficult position if they are gazumped further down the line after spending a significant amount of time and money on various mortgage, survey and conveyancing arrangements. Gazumping can be a very tough and expensive pill to swallow.
While this is the case in England and Wales, gazumping is incredibly rare in Scotland. This is because the vast majority of properties are sold by solicitor estate agents who are bound by the Law Society of Scotland’s rules. These prevent solicitors from accepting other offers on behalf of their client once an initial offer has been accepted. More information on the gazumping situation in Scotland can be found on the Law Society of Scotland’s website.
How to avoid it…
Speed up the sales process
Don’t drag your feet. Once the seller has agreed to your offer, you will want to get contracts exchanged as quickly as possible. Keep the pressure on your mortgage provider and conveyancing solicitor to process your purchase in a timely fashion and be ready to supply any information they might request.
Mortgage in principle
This one is really important. Having a ‘mortgage in principle’ from a mortgage provider will significantly reduce the time between agreement and contract exchange. The specifics of the property will still have to be ironed out but having a conditional mortgage offer will allow you to move much faster once your offer has been accepted.
Homebuyer protection insurance
Whilst this will not avoid gazumping, it will considerably help with damage limitation. Homebuyer protection insurance will allow you to claim back a certain amount of your costs, such as conveyancing, survey and mortgage fees. Most policies will cost around £50 and last between 120 to 180 days.
Lock in agreement
Also known as lock out or exclusivity agreements, the seller and buyer of a property can sign a lock in agreement to discourage each other from pulling out of the sale. The property seller therefore agrees not to negotiate with any other potential buyers whilst the buyer makes the appropriate arrangements to complete the sale.
These binding agreements are normally for a fixed period and, although the legal fees will be an additional cost, it may be worth the money for the peace of mind.
Take the property off the market
Once you’ve made an offer on a property you should ask the seller to have it removed from property listings so as to avoid further interest.
Most sellers will be happy to agree to this as it shows your seriousness in following through with the purchase, but be prepared for them to refuse. If this is the case, you might have to question their commitment to the sale or consider a legally binding agreement such as the lock in contracts mentioned above.
Gazumping is a flaw in the property industry that needs to change.
At Vesta, we want to lead by example which is why we advertise all properties that have received and accepted an offer as SOLD. Even though we are legally obliged to inform sellers about any incoming offers, we do also inform them that buyers have paid a £900 reservation fee, as well as give them the option to not be informed of any third party offers once they have accepted an offer. Our practices ensure transparency, fairness and a speedy exchange.
At Vesta, we don’t like gazumping and do everything we can to protect the interests of both property buyers and sellers alike. Get in touch with our knowledgeable team today for more advice on property investment or take a look at our current property listings