Gazumping is a term that can send shivers down the spine of anyone looking to buy property in the UK. As competitive as the housing market can be, gazumping is an issue that many buyers may face, often without realising it’s even a possibility.
For prospective home buyers and sellers, it’s crucial to understand what gazumping is, how it can affect you, and, importantly, how you can protect yourself from falling victim to it.
What Is Gazumping?
Gazumping refers to a situation where a seller accepts an offer from a buyer, but then later accepts a higher offer from another buyer before the original deal is officially finalised. This usually happens after the buyer has already invested time and money into the process, such as arranging surveys, getting mortgage approvals, and paying legal fees.
The seller’s decision to ‘gazump’ can leave the original buyer in the frustrating position of either matching the higher offer or walking away.
While gazumping is legal in the UK, it is still an incredibly frustrating experience for homebuyers, as it can result in the loss of time, money, and, potentially, the property they had hoped to call home.
How Gazumping Happens
Gazumping tends to occur in a hot property market, where demand outstrips supply, and multiple buyers are bidding for the same property. Once a buyer makes an offer, the seller may choose to accept it in principle, but until contracts are exchanged, nothing is legally binding.
A higher offer from another buyer may tempt the seller, leading them to abandon the original offer and accept the new one instead.
Gazumping typically happens during the negotiation phase, before the contract is signed. However, the crucial turning point comes when the buyer is committed enough to begin spending money on surveys, legal fees, or mortgage arrangements.
This makes gazumping feel even more frustrating since, in many cases, the buyer has already incurred costs that they will not be able to recoup.
How to Avoid Gazumping
While you can’t completely eliminate the risk of gazumping, there are several steps you can take to reduce the likelihood of it happening:
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Move Quickly and Be Prepared
Buyers who are serious about securing a property should aim to make an offer quickly and be well-prepared. Having a mortgage agreement in principle, being pre-approved by your lender, and having a solicitor lined up can speed up the process and make your offer more attractive to the seller. The quicker the deal can be finalised, the less time there is for another buyer to swoop in with a higher bid.
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Get a ‘Lock-in’ Agreement
Although not common in the UK, some sellers and buyers may choose to enter into a ‘lock-in’ agreement or a pre-contractual agreement that provides a degree of protection. This informal agreement can include a commitment from both parties that the sale will proceed at the agreed price, which can reduce the chances of gazumping.
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Consider a ‘No Sale, No Fee’ Agreement
Some estate agents offer a ‘no sale, no fee’ agreement, which means the seller only pays the agent’s fees if the sale goes through. While this doesn’t directly prevent gazumping, it can discourage sellers from renegotiating for a higher offer once they’ve agreed to sell at a particular price.
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Keep Communication Open
Ensure that there is clear and open communication with both your estate agent and solicitor. They can help you stay updated on any developments that may influence the progression of the sale. If you’re particularly concerned about gazumping, communicate with the seller directly through your agent to reassure them of your commitment.
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Be Prepared to Act Fast
In a competitive market, it’s essential to act quickly. Buyers should be ready to raise their offer in response to any counter-offers made by other buyers, but only after ensuring that the deal is progressing smoothly.
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Understand the Seller’s Motivations
Understanding why a seller is selling their property can provide valuable insight. If a seller is looking for a quick sale due to personal or financial reasons, they may be less inclined to entertain higher offers. Similarly, if a seller has already found another property, they may be eager to complete the sale swiftly.
Can Gazumping Be Stopped?
While the practice of gazumping is legal, it has led to calls for reform in the UK housing market. The government has considered making the process of house-buying more transparent and reducing the potential for gazumping, such as introducing a system where buyers and sellers sign ‘subject to contract’ agreements earlier in the process.
In Scotland, the system is different. Once an offer is accepted, it’s legally binding, making gazumping much rarer. There is ongoing debate in the UK about whether such a system should be adopted for England and Wales to make the process more secure for buyers.
The Role of the Estate Agent
Estate agents play a key role in managing offers, and although they are obliged to act in the best interest of their client (the seller), they also have a duty to treat buyers fairly.
Estate agents should keep buyers informed of any changes to the status of the property and disclose all offers made.
However, sellers are not legally required to inform their buyers if a higher offer is received until the point of contract exchange, which makes it difficult for buyers to guard against gazumping.
Final Thoughts on Avoiding Gazumping
Gazumping remains a significant issue for home buyers in the UK, especially in areas with high demand. While the practice is legal, it can lead to considerable frustration and financial loss for buyers. However, by acting quickly, being well-prepared, and maintaining strong communication throughout the buying process, you can reduce the risk of falling victim to this frustrating phenomenon.
For sellers, it’s important to understand the impact of gazumping on potential buyers and how it may affect your reputation. A well-considered approach to negotiations can lead to a smoother, more successful sale, with fewer hurdles along the way.
When buying a home with OneDome, you are protected with the OneDome Guarantee against any financial fall through.
This includes gazumping, and buyers will be protected up to £2,250 if their seller backs out of the sale after getting a better offer. Click here to learn more.