Published: 17/02/2022Gazumping happens when a buyer has had their offer to purchase a property accepted by the seller but, before contracts are exchanged, the seller accepts a better offer from another buyer.
Much as this practice might seem unfair, it is not in fact illegal. Until contracts are exchanged – the point at which an agreement to sell/buy becomes legally binding – either party can walk away without consequence.
It can take weeks between acceptance of the buyer’s offer and exchange of contracts during which time the buyer incurs costs which are not refundable in the event of the seller gazumping. These include the property survey, conveyancing fees and mortgage arrangement fees. During this time the buyer also starts to become heavily invested emotionally in the property so gazumping can lead not only to financial loss but also to huge disappointment and perhaps missed opportunities in terms of other properties.
Gazumping usually occurs in a strong property market where high demand drives up prices. However it can occur where there is little on the market but a large number of willing buyers although in this scenario the seller might ask for sealed bids before proceeding with the chosen buyer.
Although price is usually the driving factor in gazumping, that’s not always the case. If the buyer’s financial arrangements are taking too long or the buyer is experiencing delays with his conveyancer, a seller may accept an alternative offer from another buyer who already has mortgage finance in place.
Fortunately there are a few things that a buyer can do in advance to try to prevent gazumping including:
· Obtain a mortgage in principle – this is a conditional offer by a lender subject to certain conditions regarding the property
· Find a conveyancer, get a fee quote and complete all client due diligence necessary to be taken on as a client
· Line up a surveyor and ensure the property survey is carried out promptly
· Ask the seller to take the property off the market
· Request a reservation agreement (also known as a lockout/exclusivity agreement) whereby, usually for some sort of consideration, the parties enter into an agreement to do what they can to progress the transaction as quickly as possible. This might include the seller agreeing to take the property off the market and not to negotiate with another party while the agreement is in place. Such agreements are usually granted for a limited period, often 2 - 3 weeks from receipt of draft contract.
At the start of 2022, the government announced that plans to end gazumping are being considered through the introduction of voluntary reservation agreements.
The efficacy of such agreements is to be reviewed during 2022 which is a promising sign after the government pilot to assess how such agreements could work, which was due to take place in 2020, was shelved.