Gazumping. What is it and how to avoid it.
At a glance, gazumping can be explained as being the scenario when your seller accepts a higher offer from another buyer before contracts are signed and exchanged. Don’t confuse it with gazundering, where the situation is in revers, the buyer withdraws his offer and makes a lower bid.
Gazumping is a popular term in the residential industry and even is not illegal most then once, a buyer gets to deal with this scenario. So, in this guide we are going to explain what gazumping is and how can you avoid it.
Gazumping is when the seller accepts another’s buyer offer even you are in the process of buying that property and your offer has been accepted. In short terms, the seller accepts another bid even when he accepted your offer in good faith.
This can happen at any time before any legal consequences can occur – only after the exchange of contracts each party are legally bonded to the purchase. Sometimes, the main reason for gazumping is related to timings. For example, if you are taking too long to sell your home, or if your solicitor is dragging the process, the seller may decide to reject your offer in favor of another buyer which can, maybe move faster.
Unfortunately, is not an illegal technique. As mentioned before, up to exchange of contracts, either party has the right to redraw from the process for any reasons without any legal repercussions.
If you look at any estate agent websites or platforms, you will notice that some houses have the status of “sold STC” which means that offer has been accepted but the sale is subject to contracts being agreed and exchanged.
More than once, a buyer has spent money on arranging a mortgage, paid for local searches and for a homebuyer report to find out a week before the exchange of contracts that the seller actually accepted a different offer.
Realistically, a seller can always accept a different offer before is legal bonded to your offer. However, are a couple of aspects you should consider in order to minimize the chances of getting gazumped:
- Get “your ducks in order” – Make sure before you put an offer on your dream house, you have a mortgage agreement in principle. Also, have a solicitor and your documentation in stand by to avoid any unnecessary delays.
- Be organized and “on top of things” – Be as responsive as possible whenever your solicitor ask for your input, follow up with an email or a phone call if the other party solicitor or estate agent is not responsive for more than a week. Remember not to be too pushy or too demanding, use your common sense.
- Always ask for the property to be taken off the market – Once you put your offer through ask the seller to take the property off the market. In some cases, they will refuse to do so, but if you are showing you are a serious buyer, are high chances that your request to be granted. (showing a mortgage in principle, sharing your solicitor details and by setting up a survey are considered signs as being a serious buyer).
- Get insured – Some insurance companies have special home buyer insurance packages in case the seller pulls out. This type of insurance will allow you, as a buyer to claim back partial or in full your conveyancing, survey fees or other costs you may have had to pay out before you got gazumped.
- Lock our agreements – In some cases, a buyer will request a lock out agreement to ensure that he has exclusive rights to buy the property within a certain period of time.
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Even if you followed our tips and had everything you physical could do to avoid being gazumped, are situations and/or circumstances when you get gazumped anyway.
So, what can you do if you are gazumped?
Firstly, you should be prepared financially for this scenario, thus you should have a robust budget planned for your moving. Secondly, you should keep calm and do not put yourself in an uncomfortable situation by overstretching your budget.
Remember, you can always try to research the seller and explain your unique points as a buyer. For example, your are a first time buyer, therefore is a free chain transaction or that you can be really flexible on the moving date.
Despite the perception of estate agent encouraging gazumping – their earnings being dependable on the purchase price – is unlikely they will promote this type of technique.
We need to understand that legally, an estate agent is required to pass any offer they receive from any buyer at any time.
If you find yourself in this situation, you should keep calm and ask for proof of the higher offer being put forward. If is a genuine offer, then the estate agent will provide you the accepted offer letter. Keep in mind that you should do your diligence and make sure you have all the information you can have available before you make your decision.