When you’ve found a property you want to buy, you’ve negotiated and agreed on a price it might feel like it’s in the bag, in England and Wales the process of purchasing a property can be longwinded and there is the potential for things to go wrong – one particularly awful thing to happen to a buyer is the act of gazumping.
For those buying property the word gazump is often an unwelcome term as they’re likely to hear it only when being gazumped themselves or when gazumping another party, the latter of which although ultimately will mean you’ve secured the property you might not enjoy the fact that you’ve had to snuff out someone else’s purchase in order to pursue a property. Derived from the Yiddish word gezumph which means to ‘overcharge’, gazump was once the word used to describe an occasion when one person would swindle another.
Gazumping has recently been pushed to the forefront with research showing that 80% of homebuyers would like the government to introduce laws to prevent gazumping in England and Wales.
What is gazumping?
Gazumping is when another buyer makes a higher bid than the price agreed by a buyer who is actively in the process of buying the property. The new buyer will have their offer accepted at the higher figure, pushing the initial buyer out of the purchase altogether.
The act of gazumping can take place at any time before the exchange has taken place which is why it is important to be in a position to proceed to exchange speedily when your offer is accepted.
Can you avoid being gazumped?
There are several steps a buyer can take to protect yourself from being gazumped.
- Be prepared: Before you make an offer on a property make sure you have your finances in order, a mortgage agreement in principle and a solicitor prepped and ready to take action along with all the relevant paperwork, such as ID required for the mandatory anti-money-laundering check which will be needed when an offer is accepted.
- Move quickly: Once your offer is accepted it is wise to proceed towards exchange as quickly as is sensibly possible. Keep in close contact with your mortgage broker or bank and your solicitor to ensure they’re working on your behalf in a timely manner.
- Request that the property is removed from the market: If a property is no longer being advertised it is less likely to attract attention from new buyers that might make an offer and gazump the buyer who was proceeding towards exchange. Sellers are not always happy to do this immediately upon accepting an offer in case a buyer should change their mind. They will often only agree to remove the property from the market if a buyer is in a good position to move forward quickly and shows commitment such as boking the survey in very quickly once an offer is accepted.
- Lockout agreement: A lockout agreement is a legally bound contract between the buyer and the seller that gives the buyer the exclusive right to buy the property with a certain period of time. These are usually only drawn up under certain circumstances as they can be costly for the buyer as their solicitor must prepare the paperwork and that time might otherwise be spent actually working on proceeding on the purchase.
Gazumping in Scotland
The process of buying property in Scotland is entirely different from England and Wales; it is very unlikely for gazumping to take place in Scotland.
A lot of the purchasing process in Scotland is done upfront, sellers pay for a home report to be completed before the property is put up for sale which provides a guide sale price and details information for buyers about the property – there are few unknowns when you are bidding on a property in Scotland.
Once an offer is accepted the conclusion of missives, which is legally binding, can take place very quickly, much more quickly than an exchange typically takes place in the UK. Whilst gazumping in Scotland isn’t illegal, the Scottish system simply doesn’t allow much time for gazumping to take place.
Another reason for the anti-gazumping culture in Scotland is that most selling agents in Scotland are also solicitors governed by the Law Society who take a very dim view on gazumping to the extent that it is a disciplinary offence.
Gazundering is another evil which causes sellers upset. Gazundering is when a buyer lowers their offer, the agreed purchase price, at the very last minute just before the exchange is due to take place. It is often the case that a seller will see no alternative than to accept the lower offer as not doing so will place them back at square one in the hunt for a buyer for their property.
The government recently proposed a solution to gazumping in the form of ‘reservation agreements’. The reservation agreement will mean both buyer and seller pay a deposit when they enter into negotiations on a property. The thinking behind such an agreement is to ensure parties are committed and to reduce the time between making an offer and exchange.
Some agents and developers already use a similar type of agreement in the form of an ‘exclusivity agreement’ where buyers pay a deposit to secure a property and in theory lockout another party but it is difficult to enforce due to the nature of the buying process in England where things can change throughout the conveyancing process such as poor results from a survey.
There might also be problems found in scenarios where there is a long chain of buyers and sellers involved should one party genuinely be unable to find a suitable home to purchase grinding the entire chain to a halt, there could be a deadlock for some time which simply isn’t plausible.
Whilst a form of a reservation agreement might help towards eradicating the process of gazumping it needs to be carefully thought through to avoid adding to the process of buying a property, a process which is rarely entirely straight forward.
As property finders we assist clients through the entire process of finding and buying a property, we are on hand to negotiate and secure a property working closely with all parties to ensure the risk of things such as gazumping taking place is minimal.