Gazumping: what it means and how you can avoid it
You’ve found your dream home, your offer has been accepted and you’re celebrating…but then the unthinkable happens — you’re gazumped.
What exactly is gazumping, how can you avoid it and what should you do if you’re gazumped? We’ll explain it all here so that you’re fully prepared to try and prevent it from happening.
What is gazumping?
Gazumping means that after your offer has already been accepted, the seller accepts a more attractive offer. This can happen at any point before exchange of contracts, which is when the sale becomes legally binding. Depending on how far you have gone through the purchasing process, you could be severely out of pocket if you’ve already paid survey and legal fees. Worse than that, the property you were excited about moving into has now been ruthlessly taken away from you and you’re back to square one.
Usually, higher offers are the reason for gazumping but there are sometimes other reasons for sellers to consider alternative offers. You may, for example, be taking a long time to instruct a surveyor or be part of a chain that’s not progressing very quickly. In these cases, a buyer who is in a better position for a quick sale is more attractive to the seller.
Is it legal?
Unfortunately, gazumping is legal and you could be at risk from being gazumped until you’ve exchanged contracts. Once the contracts have exchanged, the sale agreement is legally binding.
Gazumping is more common in England and Wales because Scotland’s property law makes it much harder for this to occur, with the transactions being handled by solicitors rather than estate agents. Sellers usually receive offers by a particular date and then accept one in writing. The solicitor handling the transaction will not accept a new offer after this because it will place them in breach of their code of conduct. An instance of when gazumping can occur in Scotland is after a survey has been carried out and repair costs are detailed, allowing a possible price reduction to be negotiated by the current buyer.
How to avoid being gazumped
Although there’s no guarantee you won’t be gazumped, there are several things you can do to try to prevent it from happening.
- Ensure you are prepared before you make an offer
- Ask the seller to withdraw the property from the market
- Take out insurance
- Get to know the seller
- Ask for a lock-out agreement
- Act quickly
Be prepared before making an offer
Do all of your preparation in advance so that you’re ready to show the seller you’re serious at the point you make an offer. This includes having enough deposit, getting a mortgage in principle, having the required documentation ready, and finding a conveyancing solicitor. These preparatory items prevent unnecessary holdups that might make a seller consider another offer.
Ask for the property to be withdrawn from the market
When your offer has been accepted, ask the seller to stop marketing the property. That way, there’s less chance of someone else viewing it and putting in another offer. The seller may be reluctant to do this but there’s no harm in asking. He/she will be more likely to consider this if you show you’re committed to the purchase so, for example, have the survey carried out as quickly as possible.
Get Home Buyers’ Protection Insurance
Whilst taking out this insurance won’t stop you from being gazumped, it will ensure you can recoup some of your money. If the deal falls through, you’ll be able to claim for fees you’ve already paid, such as for surveys and conveyancing.
Build up a relationship with the seller
If you have a rapport with the seller, he/she is less likely to accept another offer after yours. Be sure to inform them of any progress made so that they can see you’re eager to keep everything moving along.
Sign a lock-out agreement
To protect yourself, ask the seller to agree to a lock-out agreement. This ensures you have a set period within which to complete and prohibits the seller from conducting any negotiations with other potential buyers during that time. This agreement will be drawn up by your solicitor and both parties may be asked to pay a deposit.
Keep things moving
Your agreement becomes legally binding when the contracts have exchanged so your goal is to reach that stage as quickly as possible. Provide any information you are asked for quickly and keep in contact with your solicitor and mortgage broker to check that things keep moving along. Don’t just sit back and leave them to it as your case may get pushed further down the line in favour of more urgent cases.
What can you do if you’re gazumped?
If, despite all your efforts, you’ve been gazumped, there are a couple of things you can try.
One option is to make another offer, which basically means you’re gazumping the person who’s just gazumped you. However, you must be sure that your finances can stretch to this and that the property is worth it to you. Be careful not to go above your limit.
Another option is to speak with the seller and try to persuade them to change their mind. Ask them why they accepted the other offer and sell yourself, explaining why you’re a more attractive option that the other buyer. You might be in a good position, such as a first-time buyer with no chain, or flexible and able to negotiate on the completion date. Having already built up a relationship with the seller, you can hopefully appeal to their better nature.