If you are in the market to buy a new home and doing your research into what’s involved, how long it will take, what are the risks etc, then no doubt you will have come across the concept of ‘gazumping’.
Gazumping refers to the situation where you make an offer to buy a property which is accepted by the seller, but then, at some point between offer and exchange of contracts, the seller receives and accepts an alternative offer from somebody else. The result is that you are left you out in the cold and you potentially miss out on your dream home.
While the process of gazumping might seem unfair, it is not illegal in England and Wales. In fact, data from Market Financial Solutions suggests that upto 31% of homeowners have lost out to a property during the last decade due to being gazumped. Also, of those that did lose out, almost 40% had expended fees and costs that they could not recover. It really does seem unfair and it’s not surprising that almost 80% of homeowners are in favour of making the process illegal.
However, the challenge that we face is that under the current conveyancing system in England and Wales, there is usually a considerable period of time between making an offer and exchanging contracts. This period can usually last for several months as surveys, searches, mortgage financing etc takes place. Unfortunately, during this sales progression period and right up until contracts are actually exchanged, a buyer is always at risk of being gazumped.
Gazumping usually takes place because somebody else comes along with a higher offer. But it is not always about money. Sometimes if the conveyance process is just taking too long, or your offer to buy is a little ‘shaky’ due to financing issues or being unable to sell your current property, then sellers will sometimes switch to a new buyer if it is more ‘certain’ that the transaction will complete in a shorter period of time.
So, is there anything that you can do as a buyer to avoid being gazumped? The simple answer is yes, there are a few strategies that you can look to employ to lower the risk. These include;
- Firstly, get to know the seller personally if you can through the viewing process. There is a duel benefit to this. Firstly, you can show how genuine you are as a buyer and also show how much you love the property and why it is the perfect home for you and your family. This makes your offer a little more ‘personal’ than just a financial number. Additionally, when meeting the seller, you can asses how loyal they might be and whether you think that ‘their word is their bond’ i.e if they agree to sell to you, they will stick to their word irrespective of other offers they might receive.
- One of the best ways to avoid being gazumped is by asking the seller and their agent to remove the property from being marketed after they accept your offer. An agent is under a legal responsibility to present all offers to their client (the seller), but if you can get the seller and agent to agree to 'no further viewings' after they accept your offer, that certainly limits the chances of being gazumped. A great way to achieve this outcome is to set a realistic timetable and goals for the sales progression process. For example, agree that the property will be removed from marketing and no more viewings will take place providing that (for example), mortgage financing approval is demonstrated with xx days, a survey is carried out within xx weeks, searches are applied for within xx period etc. This shows the seller that you are serious and willing to move things along as quickly as possible.
- The key to moving things along quickly is being prepared. By the time you make your offer you should ideally have a mortgage offer in principle and an idea of who your surveyor and your solicitor will be. If you can communicate this with your offer it will show that your are serious and ready to progress.
- If you have considerable cause for concern about being gazumped, you might want to consider a legal ‘lock out’ agreement. These are uncommon, but should definitely be considered if there is heightened concern. A lock out agreement will give you (as a buyer) exclusivity to complete the purchase in an agreed period of time. There will of course be a legal fee for a solicitor to draw up a lock out agreement and there is no guarantee that a seller would sign it. But if the circumstances justify it, it is certainly something that you should discuss with the seller and their agent.
- Finally, while it does not stop you getting gazumped, if you do have a considerable concern and the seller will not sign a lock out agreement, there are insurance policies that can be purchased that will allow you to claim back some of your conveyancing and survey fees if the transaction does not complete. Also, some solicitors will work on a ‘no completion, no fee’ basis which will again limit the amount that you end up being 'out of pocket'.
So, what should you do if you find yourself in the unfortunate situation of being gazumped just before exchange of contracts? Firstly, if you managed to strike up a personal relationship with the seller, it’s always worth trying to appeal to their conscience. For many sellers, it is not all about the money and they might well feel a sense of moral obligation. But if the emotional appeal fails, the only other option you have is to increase your offer and ‘gazump the gazumper’. For many this might be difficult if they are at the limit of their borrowing capacity. For others this is just unpalatable as they now have a ‘sour taste in their mouth’. But some people do indeed dig deeper and come up with a higher offer. You should try to remember that this is going to be a very emotionally charged period and whatever you choose to do, be careful that you do not overstretch yourself financially.
