Should Buyers Be Afraid of Gazumping?
Gazumping is used to describe a situation in which the person selling a property accepts a better offer from another buyer before the sale of a property to another party is completed.
Sometimes, here at Coventrymoneyman.com, we hear people incorrectly state that gazumping is illegal. Unfortunately, this is not true.
As unfair as it may seem, gazumping is a perfectly legal, and not uncommon, part of the property-buying process in England and Wales. This is because an agreement to buy or sell a property doesn’t become legally binding until written contracts are exchanged by the lawyers. Up until that point, the deal is only classed as a verbal agreement.
Gazumping can be very stressful for you as a buyer, even if it never happens. You may believe you are about to buy the property of your dreams, but always fearing that the sale might come crashing down around you. This can be especially concerning if you’re part of a chain.
What makes it more painful is that you could lose money as a result of being gazumped. This is because you might be left out of pocket by non-refundable survey costs, conveyancing fees and mortgage arrangement fees.
How Does Gazumping Happen?
As we mentioned above, an agreement to buy or sell a property doesn’t become legally binding until written contracts are exchanged. Unfortunately, there can be delays of up to several weeks between a seller accepting your offer and the exchange of contracts taking place. This can be due to having a property survey undertaken, your conveyancer carrying out the necessary searches and you receiving your mortgage offer.
Within this period, other buyers may make a better offer on the property which the estate agent has to pass on to the seller. These preferable offers are not always better in terms of financial value but may offer a faster sale or not have the pressure of a chain. The term ‘gazumping’ covers any preferable offer the seller decides to accept.
Ways To Avoid Gazumping
So, how do you overcome the prospect of gazumping? Here are a few handy tips.
- Identify a conveyancing solicitor and surveyor in advance
- Act quickly at each stage, providing all the information the different parties require
- Have a mortgage agreed in principle
There are also a couple of tactics you could use to help add more security to the deal ahead of the exchange of contracts.
Firstly, as part of your offer, ask the seller to take the property off the market as this reduces the risk of other people seeing the property. There is no obligation for them to agree, but it isn’t uncommon for them to respect this request, especially if they’ve struggled to receive offers in the first place.
Secondly, you could try to put in place a Lock-in Agreement which sees both parties put up a deposit as part of a binding agreement. If either party attempts to change the deal or back out completely then the other side takes their deposit. These arrangements can incur legal fees to set up, but you might feel it is worth the cost for the security.
Finally, there are options to take out insurance to protect yourself against gazumping. These policies agree to pay you a set fee in the event of being gazumped.