Gazumping is often heard in property transactions, but it’s not always fully understood until it happens. For those buying a home, understanding gazumping, its implications, and ways to minimise its impact is key to a smoother buying experience.
Gazumping occurs when a seller, after verbally accepting an offer from one buyer, subsequently accepts a higher offer from another. This practice can only happen before the exchange of contracts, as verbal agreements are not legally binding in England and Wales.
While gazumping doesn’t occur in some parts of the UK, such as Scotland, it remains possible in areas where legal agreements aren’t solidified early in the process. Buyers who fall victim to gazumping often lose money spent on pre-contract expenses, such as survey costs, solicitor fees, and mortgage arrangements. It’s not just a financial setback; losing a property you’ve set your heart on can also be emotionally challenging.
Why does gazumping happen?
Several factors can lead to gazumping, and understanding these can help buyers take precautions:
- Market conditions: In a competitive seller’s market, where demand outweighs supply, sellers may feel pressured to accept higher offers to maximise their returns.
- Delays in the process: If the buying process drags on, it increases the chances of another buyer stepping in with a better offer.
- Attractive alternatives: A rival buyer may be in a more favourable position, such as being chain-free, which makes their offer less complicated or quicker to complete.
Gazumping vs being outbid
The key distinction between gazumping and being outbid lies in timing. Gazumping occurs after an offer has been verbally accepted by the seller. On the other hand, being outbid happens during the negotiation phase, before any agreement has been reached.
A seller may also switch to a rival buyer, even without a higher bid, if that buyer is in a stronger financial or logistical position to complete the transaction.
Gazundering: A flip-side risk
On the buyer’s side, a similar tactic called gazundering can occur. This is when a buyer lowers their agreed offer shortly before the exchange of contracts. Buyers might do this in the hope that the seller will accept the revised offer rather than restart the selling process.
Gazundering can also result from property valuation issues or changes in market conditions. Like gazumping, it’s legal but widely regarded as unfair.
Can gazumping happen in Scotland?
Scotland operates under a different legal framework, where gazumping is much less common. Once a seller formally accepts an offer through a solicitor, it becomes legally binding. This early commitment protects both parties and makes the buying process smoother and less vulnerable to last-minute changes. Estate agents in Scotland often play dual roles as conveyancers, further minimising the risk of practices like gazumping.
Steps to reduce the risk of gazumping
While it’s impossible to eliminate the risk, there are several measures buyers can take to safeguard their interests:
- Get a Mortgage Agreement in Principle (AIP)
Securing a mortgage agreement before making an offer signals to the seller that you’re a serious buyer. It also allows you to move quickly through the process, reducing the time the property is exposed to other offers. - Act quickly
Delays can increase the likelihood of gazumping. Ensure that all paperwork is in order, and stay in regular contact with your solicitor to expedite the legal process. - Request the property be taken off the market
Once your offer is accepted, ask the seller to remove the property from online listings or sign a lockout agreement. This agreement ensures exclusivity for a set period, giving you time to finalise the purchase without competing bids. - Maintain communication
Regular updates with the seller and their estate agent can help build trust and ensure confidence in your ability to complete the sale. Be proactive in demonstrating progress with surveys and financial arrangements. - Consider Home Buyer’s Protection Insurance
This type of insurance can cover pre-contract expenses such as surveyor and solicitor fees if a transaction falls through, offering financial reassurance.
Advice for handling gazumping situations
While property transactions often focus on the financial aspects, it’s important to recognise the emotional impact gazumping can have. Losing out on a home you’ve invested time, money, and hope into can be disheartening. However, it’s vital to maintain perspective and stay prepared to move forward.
Having a support system of trusted advisors, including your solicitor, can help you navigate the process more confidently. Experienced professionals provide guidance and work to create a smoother transaction, reducing the likelihood of last-minute disruptions.
Whether buying your first home or navigating a complex property chain, preparation and knowledge are your best tools. At Martin & Co, our expert team supports your property journey, ensuring it is seamless.
