Buying a new property is an exciting time, and it’s understandable that if you’ve had an offer accepted for the property of your dreams, you’ll likely be thinking of popping the champagne open and pondering where to put your furniture.
As nice as it is to get wrapped up in the exciting prospect of moving into the property you’ve got your heart set on, there are some things to be mindful of. As any buyer will know, the house-buying process can be a convoluted one and often, it comes with unexpected obstacles. One of the most frustrating things to encounter is the act of ‘gazumping’, a word that no prospective buyer wants to hear.
Gazumping can leave you out of pocket by thousands of pounds, specifically due to non-refundable costs for things like surveys and mortgage arrangement fees. And unfortunately, it’s a common occurrence for buyers. In fact, a survey conducted by Market Financial Solutions (MFS) revealed that 31% of homeowners have been gazumped by a rival homebuyer in the last decade. So, if you’re thinking of buying a new home, it’s definitely something you’ll want to try and protect yourself against.
In this article, we’ll explain all you need to know about gazumping, from what it is to how to avoid it. This will hopefully help you increase your chances of successfully buying your dream home. So, without further ado, let’s get to it!
What is gazumping?
Gazumping is when a buyer has their offer on a property accepted, but the seller then accepts a higher offer from another party. The original buyer loses out on the property and is pushed back to square one in the buying process.
It can happen at any point between the seller accepting the original offer up until contracts have been exchanged. This said, it usually takes place right at the last minute, which leaves the buyer without their chosen property and out of pocket because they have already paid for costs such as a surveyor and legal fees.
Gazumping is not just bad news for buyers, it can also prove an issue for sellers as it means they have to also start the selling process again with a new buyer, with no guarantee it will go through. Also, like buyers who are gazumped, sellers can lose out on time and money.
Not to be confused with gazumping, gazundering is the practice whereby a buyer lowers their offer at the last minute, usually just before contracts are exchanged. This poses an issue for sellers as it risks the buying chain falling apart, as well as potentially forcing them to accept a lower offer.
Where does the word gazump come from?
There’s no denying the word gazump is an unuausal one, so where does it originate from? Some dictionaries suggest that it comes from the Yiddish word gezumph, which means to overcharge or cheat. This is further backed by its translation into English in the 1920s, meaning to swindle. There are some alternative spellings of the word gazump which are gazumph and gazoomph. However, these and the original Yiddish spelling are now much rarer. Also, whilst it can still be used to refer to swindling, gazumping is more often used in reference to the property buying process whereby a buyer gets outbid.
What causes gazumping?
There are several reasons why you might be gazumped. One of the most obvious ones is that the seller wants to make more money, and therefore they will accept a higher offer. Unfortunately, as a buyer, there’s not a huge amount you can do about it unless you have the budget to make a higher counteroffer.
Another situation that may leave you at higher risk of being gazumped is if you’ve put in a low offer and the seller accepts it. Whilst it is common for buyers to make an offer that is below the asking price for a property, doing so does leave you at a higher risk of being gazumped by a buyer who is willing to pay the asking price or potentially more.
As anyone who has bought or sold their home will know, the process can be long and tedious. Delays can pose an issue, particularly if you are part of a chain and each party is relying on the other sales to go through in a timely manner. If the buying process is taking too long on your end and the seller wants a quick sale, they are more likely to accept another offer from a buyer who is in a better position and can move the sale along faster. Alternatively, the seller may see delays as reluctance from your side and choose to accept an offer from another party that they consider a more serious buyer.
Finally, gazumping is also more common in a seller’s market, where property prices are rising. The reason is that increased house prices and a lack of properties create a competitive market where sellers value speedy property sales. As a result, buyers are also likely to lose out on properties if they cannot keep up.
Is gazumping legal?
Whilst considered unethical, gazumping is unfortunately legal. Until you have exchanged written contracts with the seller, all you have is a verbal agreement which is not legally binding. This means the seller can still technically be open to offers from other prospective buyers.
It is also why estate agents use the term ‘Sold STC’, meaning sold subject to contract. Again, this is when a buyer has had an offer accepted, but the paperwork and contracts have not been completed, and the sale made legally binding.
How can you avoid gazumping?
There are several steps you can take to avoid being gazumped:
- Make a strong offer: if you can afford to, offer the asking price or close to it. As tempting as it may be to try and get a property for a discount, offering a low amount will put you at a higher risk of someone beating your offer.
- Ask for the property to be taken off the market: although sellers aren’t obligated to do so, you can ask the seller to take the property off the market as part of your offer. This will prevent others from being encouraged to make an offer.
- Get a lock-in agreement: also known as an exclusivity agreement, this is a binding agreement that means the seller cannot negotiate with other parties within a specified period of time. This will allow you to sort out things like your mortgage without being gazumped.
- Get to know the seller: interacting with the seller and showing them you are a serious buyer will often help you avoid getting gazumped. This is because they’ll be less likely to drop you for a better offer.
- Act quickly: once contracts have been exchanged, the agreement is legally binding. As a buyer, you’ll want to move the sale along as quickly as possible to get to this point — carrying out the following steps will help you do this.
- Line up a solicitor or conveyancer: sorting out your solicitor or conveyancer early will mean you can proceed with the paperwork and contracts as soon as possible, keeping the sale moving.
- Obtain a mortgage in principle: sorting your mortgage can be one of the most time-consuming steps when buying a property. A mortgage in principle is a conditional offer given by a mortgage lender, and having this agreement already in place can speed the process up.
It is also worth noting that you can get insurance which provides you with a payout in the event of being gazumped. Although you can’t fully prevent gazumping this way, it does help minimise the monetary impact that it will have.
Do estate agents encourage gazumping?
It has been claimed that some estate agents encourage gazumping, particularly if they earn a commission. However, estate agents are legally obligated to convey any offers to the seller, even after one has been accepted. For this reason, it’s unlikely that an estate agent has intentionally encouraged gazumping, but rather they are just doing their job.
This said, if you have put in an offer, you may find that the estate agent comes back to you with a higher counteroffer. Before you jump to raise your offer, check to see whether the counteroffer is genuine and, if so, only increase yours if you can really afford to.
How do you know if another offer is real?
To check that a counteroffer for the property you are trying to buy is real, request written proof from the solicitor that confirms the new offer. Once you have confirmed the offer is genuine, you can decide whether you can afford to up your offer — and if you think it’s worth it.
What can you do if you are gazumped?
If you find yourself in the unfortunate position of being gazumped by another buyer, you have three main options:
- Walk away from the property: if you cannot afford to increase your offer or you do not think the property is worth paying more money for, you can choose to walk away from the sale
- Increase your offer: if you have your heart set on a specific property and are in the position to be able to counter the offer made by the gazumper, you can increase your offer. However, be mindful that you may still be gazumped again by the other prospective buyer.
- Sell yourself to the property owner: as opposed to offering more money to the seller, you can highlight your qualities. For example, you may be a no-chain buyer or be fully flexible on moving dates. These may be enough to sway the seller to choose you over your competitor.
Gazumping is when you have an offer accepted by a seller, but before you exchange contracts, they accept a higher offer from another buyer.
As a buyer, you can avoid being gazumped by:
- Acting quickly
- Offering the asking price for a property
- Getting a lock-in agreement
- Taking out an insurance policy that provides a payout in the event of being gazumped
- Asking the seller to take the property off the market
- Lining up your solicitor or conveyancer
- Getting a mortgage in principle
- Getting to know the seller and proving you are a serious buyer
If you do unfortunately get gazumped, you will need to decide between walking away from the property, upping your offer to rival the other buyer, or trying to sell yourself to the seller of your chosen property. If you do decide to increase your offer, ensure you can afford it and remember that there is no guarantee you won’t be gazumped again.