Gazumping is a term you might have heard before, but you might not be sure what it means. It’s 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 Newcastlemoneyman, we hear people say that gazumping is illegal. However, 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. Why? Because property deals aren’t legally binding until written contracts are exchanged by the lawyers. Until that point, the deal is only classed as a verbal agreement.
Gazumping can be a daunting prospect for potential First Time Buyers. Even if it never happens.
You may believe you are about to buy the property of your dreams, but then the sale comes crashing down around you. This isn’t something anyone wants to experience. Especially 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.
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.
Within this period, other prospective First Time 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 incentives such as a faster sale or not having the pressure of a chain. The term ‘gazumping’ covers any preferable offer the seller decides to accept.
The delay between offer acceptance and the exchange of contracts can be due to undertaking a property survey, your conveyancer carrying out the necessary searches and you receiving your mortgage offer.
Knowing this, here are a few handy tips to help you increase your chances of getting the deal over the line and avoid being gazumped.
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.