Gazumping explained

Last updated: April 2024 | 4 min read

Gazumping occurs when another bidder offers more money for a house you're buying, even after your offer has been accepted by the seller. This could happen because they can complete the sale faster or offer a higher price. If the seller accepts their offer, you lose the chance to buy the home, potentially wasting the money you might have already spent on legal fees on any surveys. Learn the details of gazumping and how to avoid it. 

You've likely considered what to look for when viewing a house and estate agents' legal obligations to buyers. Yet, an unexpected twist, gazumping, might be waiting. This practice can significantly alter your costs of buying a house, impacting both your budget and emotions. Here, we equip you with strategies to tackle this challenge, ensuring a smoother property acquisition.

What is gazumping?

Gazumping refers to the situation in the home buying process where a seller accepts an offer from one buyer but then goes on to accept a higher offer from a different buyer, sidelining the original individual.

How gazumping occurs in the home buying process

In the UK, the property market operates on the principle that until written contracts are exchanged, the sale isn't legally binding. This opens a window of opportunity for gazumping. Here's how it typically unfolds:

  1. A buyer expresses interest in a property and submits an initial offer.

  2. The seller agrees to this offer, often taking the property off the market.

  3. While the original buyer progresses with the mortgage application, and property survey, and liaises with the conveyancing solicitor, another buyer comes into the picture.

  4. This new buyer puts forth a higher offer.

  5. The seller decides to accept this new, more appealing offer.

  6. The original buyer is left in the lurch, sometimes having already spent money on mortgage arrangement fees, conveyancing fees, and surveys.

Impact on buyers: financial and emotional setbacks

When gazumping happens, the original buyer faces both financial and emotional repercussions.

Financially, the buyer may lose out on money spent on the conveyancing solicitor, the property survey, and mortgage arrangement fees. Moreover, if the buyer had a mortgage in principle from a mortgage provider, they might need to reassess their mortgage offer or even look for a new mortgage broker.

Emotionally, the experience can be taxing. Imagine finding your dream home, getting your offer accepted, and then watching it slip through your fingers. This can cause stress, disappointment, and a loss of trust in the buying process. It can be especially disheartening for a first-time buyer, eager to secure their first property.

For the serious buyer, gazumping poses an unexpected hurdle in what can already be a complex journey of home ownership.

In the UK, the practice of gazumping raises questions about its legality and the implications for both buyers and sellers.

Comparing England and Wales with Scottish law

In England and Wales, the sale becomes legally binding only when both parties sign the contracts and exchange them. Until this exchange occurs, neither party has legal obligations.

This means that gazumping is perfectly legal, and a seller can accept a higher offer even after verbally committing to another buyer.

Buyers in this situation can find themselves facing disappointment and unexpected costs.

In contrast, Scotland operates on a different system. Once an offer is accepted in writing in Scotland, it becomes legally binding. Gazumping is, therefore, rare and generally considered unacceptable.

The swift nature of the Scottish system, where both parties commit earlier in the process, reduces the chances of last-minute changes.

Legal fees and other costs when gazumped

When a buyer finds themselves gazumped, they often face financial implications. Many buyers might have already spent money on surveys, legal fees, and mortgage agreement processes.

Unfortunately, these costs are non-refundable. As a result, a buyer can end up out of pocket without securing the property.

Even though gazumping is perfectly legal, it can sour relationships and harm the reputation of sellers and estate agents.

Being gazumped can be frustrating and expensive. However, prospective buyers can take certain steps to reduce the risk and ensure a smoother property purchase journey.

Unveiling the estate agent's perspective

Estate agents play a multifaceted role in the property market. When gazumping occurs, their standpoint and actions can greatly influence the situation.

How estate agents can influence gazumping

Estate agents have a finger on the pulse of the property market, making them key players in any sale.

After an offer gets accepted, they remain in contact with both buyers and sellers. This communication link provides them a unique position to either curb or facilitate gazumping.

When a better offer emerges, estate agents may inform the seller, but whether they do can depend on several factors, including their relationship with the initial buyer, their own ethical stance, and the potential for a higher commission.

Why most estate agents discourage gazumping

While gazumping might lead to a higher sale price and potentially more commission, many estate agents steer clear of encouraging the act. The reasons are manifold:

  • Reputation: gazumping can tarnish an estate agent's reputation. Most agents prize long-term relationships and referrals over short-term gains.

  • Prolonged sale process: gazumping can delay the sale. If the initial buyer withdraws, and the new deal collapses, the property lingers on the market, which isn't ideal for the agent or the seller.

  • Strained relations: gazumping can strain the estate agent's relationship with buyers, which could deter future business.

The fine line: ethical considerations and unscrupulous agents

The property market, like any other, has its share of ethical and less-than-ethical professionals.

While many estate agents uphold a strong code of conduct and prioritise client relationships, others may be tempted by the allure of quick financial gains.

These agents might encourage gazumping, viewing it as just another market dynamic.

As a buyer, awareness of such practices can empower you to choose agents who align with your values and interests.

How sellers see gazumping

For sellers, the property market is a platform to achieve the best sale price. Gazumping becomes an avenue for some sellers to capitalise on escalating property prices and heightened demand.

Why a seller accepts a higher offer from another buyer

The core reason is simple: more money. If another buyer proposes a more attractive offer, a seller might consider it, especially if contracts haven't been exchanged. Other compelling reasons might include:

  • Faster completion: a cash buyer or someone with no property chain might promise a quicker moving date.

  • Fewer complications: a buyer in a better position, perhaps with all paperwork in order or without any mortgage requirements, can be tempting for sellers keen on a smooth sale.

  • Market dynamics: in a rapidly appreciating market, sellers might feel their property has gained value since the initial offer.

Pros and cons for sellers

Gazumping isn't a guaranteed win for sellers. While the allure of more money or a smoother sale is evident, there are potential pitfalls:

  • Risks of sale breakdown & delays: the new buyer might pull out, leaving the seller back at square one. If the initial buyer is deterred and the new deal collapses, the property could remain on the market longer.

  • Reputation: neighbours and the local community might view the seller in a negative light if they're seen to be encouraging gazumping.

In the property buying journey, understanding different perspectives can offer clarity. For sellers and estate agents, gazumping can be a complex, multifaceted issue, coloured by market dynamics, personal ethics, and individual priorities.

Proactive measures: how to avoid being gazumped

Be ahead of the game by organising all the necessary documentation

Estate agents often mention the speed of completion as a key factor for sellers when considering offers. Therefore, having your mortgage in principle, solicitor details, and other paperwork ready to go can help avoid potential delays.

By doing this, you present yourself as a serious buyer, and this can discourage the seller from considering offers from other buyers.

Secure an exclusivity agreement with the seller

An exclusivity agreement, sometimes called a 'no sale, no fee' arrangement, ensures that for a certain period, the seller won't entertain offers from other buyers.

Asking the seller for such an agreement means they commit to you for the specified duration. It can provide peace of mind, ensuring that once your offer is accepted, the property will be taken off the market.

Build trust and maintain regular contact with the seller

Building a rapport with the seller can be a simple yet effective tool. Regular communication establishes trust and shows that you're genuine about the purchase.

While it's not a foolproof method, often sellers prefer buyers they have a good relationship with, even if another buyer presents a slightly higher offer.

The importance of keeping momentum in the buying process

Delays can sometimes prompt sellers to reconsider their options. To avoid gazumping, maintain a steady pace in the buying process.

This includes promptly responding to solicitors, arranging necessary surveys quickly, and showing eagerness to move things forward.

An offer accepted is a positive step, but until contracts are signed, keep the momentum going.

Lock out agreements: setting a fixed period for the seller

Lock out agreements are arrangements where the seller agrees not to negotiate with other buyers for a certain period. This allows you, the buyer, to complete necessary checks and processes without the looming threat of being outbid.

While these agreements require the seller to take the property off the market, they don't bind them to sell. Yet, they can offer an added layer of security for potential buyers.

Is home buyers protection insurance worth it?

This insurance policy can cover costs such as survey and valuation fees if the purchase falls through due to reasons like gazumping.

While it doesn't prevent the act, it cushions the financial blow if the unexpected occurs. Before purchasing, ensure you're clear on what the policy covers.

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