This weird piece of property jargon is something that almost everyone will have heard at one time or another, but what is gazumping exactly? We’ll answer that fully in this article and give you an insight into what you can do to prevent it happening to you.
What is gazumping?
Before we get into anything else, let’s clear up the big question - what is gazumping?
Gazumping is when another person puts in a higher offer on a property you are in the process of buying and their offer gets accepted by the seller, thus scuppering your chances of purchasing the property in question.
The key point here is that your verbal offer had been accepted by the seller, but they chose to go against their word and accept a higher offer from another party before the sale was completed.
Is gazumping legal?
It’s a good question, as it certainly seems worthy of legislation. Unfortunately, however, gazumping IS legal in England and Wales at present, although there has been talk of a clampdown on the practice in recent years. Despite the calls for a more stress-free moving process for both buyers and sellers, nothing has been set in stone as of yet.
The law in England and Wales currently states that the seller is perfectly within their rights to change their mind and go with another buyer who offers more, but that’s not the case everywhere in the UK, In Scotland, gazumping has been countered by legislation that makes any accepted offer legally binding, which means that the buyer is protected once they’ve made an offer and the vendor agrees.
Is gazumping immoral?
Another good question, but not quite as cut and dried as the ‘Is it legal?’ query.
Some will say that there is nothing wrong with gazumping, while others will visibly seethe with rage at the very mention of the word; it’s an extremely subjective, yet emotive matter. The argument for gazumping will usually go along the lines of, ‘Well, no money has changed hands, so...’, but that rarely paints the whole picture.
While it may be true that the seller hasn’t received any money from the buyer directly, that doesn’t mean that the buyer won’t be left out of pocket. More often than not, those who have been gazumped will have already spent a good deal of money on fees...and that’s without taking into account lost time.
The real question you need to ask if you ever find yourself in a position to facilitate a gazumping is: ‘Would I be happy if it happened to me?’ We all know the answer to that one!
What role do estate agents play in gazumping?
Much is made of estate agents being instigators of gazumping, but that’s often far off the mark. Of course, a higher sale price can sometimes mean a greater commission for the agent, and some of the more unscrupulous agents out there will undoubtedly rub their hands together at the thought. However, the majority of small, reputable High Street firms will tell you that gazumping is one of the most unpleasant aspects of the business they have to deal with.
A bigger problem lies with the larger, more “corporate”, estate agencies who often pay low basic salaries and heavily incentivise the individual negotiators with personal sales commissions. The negotiators will then play one buyer off against the other, as they are pitted against their colleagues, have individual targets to hit, and could stand make many hundreds of pounds themselves personally.
This is what often leads to persuasive tactics being used, which gives people another stick to beat all agents with. Many of these ‘agents’ are no more than hard-nosed sales people with little to no regard for the people they are serving. The prospect of bragging rights and a larger monthly pay packet by way of a sales bonus is far more important to them than the customer they’re dealing with.
A small agent like Pettys, on the other hand, would find the small jump in sale price (and subsequent commission), inconsequential, as we do not pay our agents personal commissions, which is something we decided not to do on day one.
It’s vital to remember that not all estate agents are created equal and that smaller firms like ours have a greater capacity to provide a more personal service to clients. As a result, this means our agents empathise more with the people they deal with and abhor the thought of putting them through such an unpleasant and potentially damaging process. Our clients are, after all, more than just another number on a balance sheet.
A duty to inform
Few people realise that, by law, estate agents HAVE to inform sellers of EVERY offer they receive in writing, regardless of whether or not the vendor has accepted a previous offer, and that also extends to properties that have been removed from the marketplace. This comes from the Estate Agents Act of 1979.
Again, there’s little doubt that a few rotten-apple-agents will present these increased offers to sellers in a persuasive manner (in fact, the heavily sales-based environment created by corporate agents, as stated above, and the conditions which enable them to play one buyer off against another, makes gazumping almost inevitable in these firms), but to say that all agents do so is simply untrue. All agents do need to present the offer, but the good ones will also give guidance and advice, explaining the situation clearly and honestly.
When push comes to shove, it’s the vendor’s decision. Agents can’t hide the offer, nor can they force someone to disregard it. If the sellers want more money from their sale, the decision is theirs to make.
How to avoid gazumping
Now we know what gazumping is and the fact that sellers are legally able to do it, the final question is: What can buyers do to prevent gazumping happening to them?
While it’s impossible to prevent it completely, there are one or two things you can do to make gazumping a lot less likely. Let’s take a look at them now:
Making the first offer on a property is a little like feeling something out. It’s often a tentative act made before committing to arranging checks and getting things organised. The problem, however, is that all of this takes time...which means there’s also more time for another buyer to step in with an increased offer.
In simple mathematical terms, the faster you get through the buying process, the less time there is for you to be gazumped. Have as much as you can in place before you make an offer and don’t be afraid to chase up your solicitors, lenders, and agents should they start dragging their heels.
Things to address before you begin house hunting include:
Mortgage in principle
Getting a mortgage in principle is vital if you want to move quickly. Yes, you’ll still have to jump through a few hoops before your lender will agree to lend on a specific property, but having a preliminary agreement in place will make the process faster and smoother, thus lessening the chances of being gazumped.
Not quite as obvious as the mortgage in principle, but no less important, is finding yourself a conveyancing solicitor before you choose a property. Many buyers wait until they fall in love with a home before searching for someone to handle the conveyancing for them, but this is a mistake. Do your homework on local solicitors before conducting a property search wherever possible.
Even less obvious, and more infrequently done, is having a good surveyor in mind before you make an offer. Knowing who you’re going to use means you can arrange a survey quickly once you’ve found a property you want to move on, and any time saved by you will mean less time for potentials gazumpers.
Be sure to check out our guide to choosing a surveyor for more info.
Anything else to prevent gazumping?
Yes! Moving fast and keeping on top of things is number one, but there are other things you can do to avoid being gazumped. These include:
As part of your offer, you can ask the seller to to agree to an exclusivity clause which would prevent them from entering into negotiations with a third party for a fixed period of time. Exclusivity agreements can be a great way to avoid being gazumped and provide both the buyer and seller with peace of mind over the sale.
Such contracts (sometimes referred to as ‘lock ins/outs’ or ‘preliminary’ agreements) are usually drawn up in conjunction with a deposit being made by both parties (buyer and seller). This will be forfeited should either one back out or change anything about the initial offer that isn’t included in the agreement, such as issues highlighted by a surveyor.
Take off the market
Surprising though it may seem to many, sellers are not obliged to take their property off the market even if they have received and agreed a concrete offer. As a buyer, however, you can request they do so as part of your offer, which will also lessen the chances of gazumping taking place.
As you’ve probably gathered by now, there’s really no way you can guarantee not being gazumped. Even if you do all of the above in an effort to prevent gazumping from happening, there is still a chance that someone will come along with a better offer and your seller will let you down.
Unsurprisingly, then, the insurance industry has stepped in to offer cover for any losses you may incur should the worst happen. Obviously, we’d all rather see the government take the bull by the horns and make gazumping a thing of the past, but, until then, insuring yourself against being gazumped should be considered.
That’s it! Everything you wanted to know about gazumping covered. Don’t forget to share this article if you know someone who’s thinking about moving home soon...it could save them a great deal of time and money.
If you’re thinking about buying or selling property in or around Wanstead or Buckhurst Hill, get in touch! Our team are always happy to answer any property related queries you might have.