What is gazumping?
Gazumping is a term used in the real estate industry to describe when a new buyer outbids another existing buyer for a property after an agreement between the seller and the initial buyer.
Unfortunately, until contract exchange, the transaction is not legally binding. The seller is still free to sell the property to someone else if they receive a better offer.
Being gazumped can be a costly and frustrating experience for the buyer, who may have already made arrangements to secure conveyancing services or moving costs. In this article, discover how you can counteract gazumping and ensure your property purchase.
Why does gazumping happen?
Whilst gazumping isn’t inherently common, it should be something that all buyers are aware of before entering the property market. Although the property seller initially decided to accept your offer, circumstances may have changed, and they can change their mind if a more desirable buyer offers something more beneficial.
Gazumping usually happens when there is a significant difference or bidding war between the initial offer of the first buyer and the new buyer. The critical factor isn’t always the price difference. If a cash buyer enters the transaction, sellers can be swayed by a simple and efficient transaction. Alternatively, if the buyer has trouble acquiring a mortgage or completing the conveyancing process, sellers might consider different offers from external parties.
Is Gazumping Legal?
Until the exchange of contracts, both parties involved in the property transaction are free to leave the process, whether due to financial difficulties, a change of heart, or receiving a better offer. It is perfectly legal for external parties to present a new proposal to the sellers and be accepted.
The circumstances change once the contracts have been signed and exchanged for the sale of the house. Both buyer and seller would have agreed to the terms of the sale of the property, creating a legally binding agreement. If the seller were to accept external offers on the property at this point, it would be considered a breach of contract, and the initial buyer could take legal action.
Is there any insurance against gazumping?
Homebuyers protection insurance covers buyers for the financial losses incurred due to the failed purchase of a property. When making claims, the circumstances which have caused the transaction to fail must be outside your control. For example, the property search results have highlighted significant issues with the property.
This type of insurance can be helpful for gazumped buyers, as it can reimburse certain costs, such as legal fees.
Suppose you are concerned about losing money due to gazumping; purchase homebuyers protection insurance immediately after accepting your offer on a property. It is important to note that the insurance is only valid before the sale falls through. This type of insurance won’t reimburse costs if the policy is initiated after you have been gazumped.
How you can prevent gazumping from happening to you
While an insurance policy offers some protection for your finances, losing out on a property you wanted to purchase can still be upsetting. Fortunately, you can take steps to minimise the likelihood of being gazumped.
Ask your estate agent to take the property off the market
After accepting an offer on a particular property, many estate agents will leave the listing on the market by relabelling it as ‘Sold subject to contract.’ Informing potential buyers that the property sold, STC reports an accepted offer, but the legal process has not yet been completed.
If these potential buyers are interested in the property and have something of value to offer, they can register their interest with the estate agent. The agent is then obligated to inform the seller of any further appeal. Here is the scenario that leads to gazumped buyers.
After having your offer accepted by the seller, you can request that their estate agent removes the listing from the property market. This reduces the property’s visibility, allowing for a lock-out exclusivity agreement between the buyer and seller.
Make arrangements to prepare for the property purchase
By arranging your finances and ensuring you are ready to progress throughout the purchase transaction, you can demonstrate that you are efficient buyers to the property sellers. This will help to reduce the need for a new buyer. Gazumped buyers often regret not having taken these precautions
Securing a mortgage
By arranging the mortgage agreement to purchase the property, you demonstrate to the seller that you are a serious buyer. This can help discourage external parties from making an offer on the property.
Hire your conveyancing solicitor early
Conveyancing solicitors are responsible for the legal process of transferring ownership of a property. By hiring them early, you ensure plenty of time to carry out their work and arrange all the necessary documentation. My Conveyancing Specialist are providers of highly affordable efficient conveyancing quotes, get yours here.
Stay active during the purchase procedure.
By contacting your estate agent and solicitor during the purchase, you can ensure that everything is moving along as it should be. Signing documents and executing action as soon as possible provides the process doesn’t become stagnant.
To summarise, gazumping is when a potential buyer makes an offer on a property that another party has already accepted. The seller chooses to sell to the new buyer instead. This can often lead to buyers losing money, as they have usually already made financial commitments regarding purchasing the property.
If you take these steps to prepare for purchasing a property, you are decreasing the likelihood of gazumping from happening to you. While there isn’t a 100% guarantee that you will not be gazumped, they will help protect your interests in purchasing a property.