Gazumping is the name given to the act of outbidding another who had previously agreed to buy the property on which the new bidder (the gazumper) is offering.
Gazumping generally happens far more in a buoyant and/or rising market where lots of people are trying to buy. Perhaps not unreasonably, a buyer may have his or her head turned when a new offer is made that might be tens of thousands of pounds more than the offer he had accepted a few weeks previously. Of course, some people consider a handshake binding, but in the cold light of day it is not.
Of course, the act of gazumping can cause considerable distress, especially if you are the one that has been gazumped! You may have spent money on legal fees and surveys; money you can’t get back, or you might simply have lost the home of your dreams. Either way, it stings.
There are three primary reasons why gazumping is rife in a buoyant market. They are;
- In England and Wales, a contract for the sale of land must be evidenced in writing as set out by S2. of the Law of Property (Miscellaneous Provisions) Act 1989. The contract must be complete and include all the terms that allow it to be a definitive contract. This means there is a delay between agreeing the basic terms of the sale and exchanging a binding contract for the sale.
- Estate Agents are legally required to report ALL offers to their clients (the seller). Many people do not appreciate this legal obligation exists and blame the agent for instigating a gazumping situation by reporting a new offer after terms have been agreed.
- To most of us, an extra five or ten thousand pounds free of tax takes a lot of earning. Therefore, if you are offered that sort of money a couple of weeks after, you may be tempted. However, sellers should consider all facts to also establish who is in the best position.
The arrangement of mortgage, survey, searches and legal niceties can easily take 8 – 12 weeks and during this time both the buyer and seller are exposed to either party changing their mind or taking another bid.
Sometimes a buyer or seller might request a side agreement which binds the other party to buying/selling to them or otherwise standing to forfeit a small deposit. This is unusual, but in some cases it may be agreed; usually where there are substantial costs being incurred before the purchase contract is exchanged.
The best way to avoid being gazumped is to act swiftly after you have agreed terms. If you are a buyer this means having your mortgage offer agreed in principle and your legal representative fully briefed. Ideally you will not be reliant on a long chain of other sales completing before you can proceed as this can cause delays.