When the owner accepts the offer on a property, the buyer will usually not yet have commissioned a building survey nor will the buyer have yet had the opportunity to perform recommended legal checks. The offer to purchase is made “subject to contract” and thus, until written contracts are exchanged either party can pull out at any time. It can take as long as 10-12 weeks for formalities to be completed, and if the seller is tempted by a higher offer during this period it leaves the buyer disappointed and out of pocket.
Definition of Gazumping
Gazumping is the term used to describe this situation where the seller of an asset accepts a purchase offer, having already accepted another lower offer from another potential buyer. In other words, the seller changes his deal to sell to a second buyer who offers more money.
A buyer with ready cash will often be in a position to gazump somebody who has to raise capital through a mortgage. This is because under English law, the seller is not legally committed to go ahead with the sale until the point at which contracts are exchanged.
Gazumping and Rising House Prices
Gazumping tends to become a feature of property shortages or bull markets, where house prices are racing ahead and buyers begin to panic that they may find their potential dream home rising in value out of their “price range”. Estate agents having put a buyer and seller together often discover a fresh potential buyer appears on the scene. The agent then has a duty to advise his client, which may encourage the seller to switch allegiance to the new purchaser.
Gazumping is behind a large proportion of deals that collapse so protects yourself as much as you can:
Protection Against Gazumping
- Get a mortgage agreement in principle before house hunting.
- Make your mortgage application quickly after making an offer.
- Having had an offer on a property accepted get your solicitors working
- Get any survey done as quickly as possible.
- Maintain good relationships
- If the market is booming offer the asking price.
- Ask that the property be taken off the market after you’ve made an offer. – Make sure this is a written agreement
- Keep in touch with the sellers agent to let them know your progress
- Establish a rapport with the seller it will make it harder for them to ditch you.
Other options To Prevent Gazumping
- Insure yourself against the costs of being gazumped.
- See this article at BBC Lambeth Building Society protects against gazumping.
- Get your solicitor to arrange an exclusivity or lock in agreement for a none returnable deposit
- Buy at Auction
- Buy under sealed bids
- If all else fails buy in Scotland (where gazumping isn’t permitted)