Gazumping is a term used to describe a situation where a seller accepts a better offer from another buyer before a property sale is complete.
Sometimes here at Manchestermoneyman.com we hear people say that gazumping is illegal. Unfortunately, this is not true.
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 property does not become legally binding until lawyers exchange written contracts. Until then, you only have a verbal agreement.
Gazumping can be a very stressful experience for buyers. You may think you are about to buy your dream property when the sale collapses. It may also be part of a chain that is broken and as a result you have to push back your move date.
It can be even more painful if you lose money as a result. This is because sometimes non-refundable inspection costs, transfer fees and mortgage settlement fees can put you out of pocket.
How does gazumping happen?
As we mentioned, an agreement to buy or sell property does not become legally binding until written contracts are exchanged. Unfortunately, there can be delays of up to several weeks between when a seller accepts his offer and the contract exchange takes place. This may be because the property has been inspected, your mover has done the necessary searches, and you have received your mortgage offer.
Within this period, other buyers can make a better offer on the property that the real estate agent has to transfer to the seller. However, these preferable offers are not always better in terms of financial value. They may offer a faster sale or not have the pressure of a chain. Hence the term ‘gazumping’ covers whatever preferable offer the seller decides to accept.
Ways to avoid glare
Unfortunately, there are certain things that will not happen until you have decided to make an offer, namely the property appraisal, transmitter searches and the mortgage offer. However, you can reduce the time between making an offer and the contract exchange.
Ways to do this include…
- identify a transfer attorney and an expert in advance
- act quickly at each stage, providing all the information that 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 before the contract exchange. First, as part of your offer, ask the seller to take the property off the market, as this reduces the risk of others viewing the property. They are not required to agree, but it is not uncommon for them to honor this request, especially if they had trouble receiving offers in the first place.
Second, you could try to set up a lockup agreement where both parties make a deposit as part of a binding agreement. If either party tries to change the deal or walk out entirely, the other party takes your deposit. These arrangements may incur costs such as legal fees to set it up, but you may find the cost of security worth it.
Lastly, there are options for taking out insurance to protect against gazumping. These policies agree to pay you a fixed fee if you are gazumped.