Gazumped! How to avoid the biggest property pitfall
Experts are concerned about the return of gazumping after more than a third of house sales were hijacked by a higher bidder in the last year.
Recent research revealed two in five buyers admitted securing a home by putting in a better bid after a sale to someone else was agreed but before contracts were exchanged.
The practice, which amazingly is not illegal, was the leading cause of property deals not going ahead in the last 12 months, according to comparison site comparethemarket.com.
Three quarters of prospective buyers said they would consider gazumping other wannabe purchasers in order to get their dream home.
And more than a third of buyers said they had paid over the asking price for a home, with an average overpayment of £16,000.
The rise in gazumping comes amid a buying frenzy boosted by Chancellor Rishi Sunak's stamp duty holiday.
Property experts say the race to meet the deadline before the duty is reintroduced has led to a big increase in gazumping of homes already under offer.
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What is gazumping?
If you’ve ever been a victim of gazumping, you’ll know the feeling. That deep sense of loss and frustration as the property that you had mentally and emotionally already moved into suddenly slips out of your hands.
You’ve instructed solicitors, funded surveys, paid mortgage arrangement fees, when someone swoops in at the last minute to offer the seller more money and suddenly you're back at the very beginning, scrolling Rightmove for recently added properties for sale.
Gazumping occurs when a seller accepts your offer, but then turns it down right at the last minute in favour of a higher offer from somebody else.
"This can happen within the very last stages of buying a house, as the purchase is not legally binding until you and the seller have exchanged contracts," explains Holly Andrews, managing director at KIS Finance.
"Gazumping can mean months of hard work going to waste, as well as any money that you’ve had to pay out so far.
"It can be truly devastating when you think you’re just about to purchase your dream home, only to have it ripped away from you at the last minute and having to start the long process all over again."
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Why are we seeing a return to gazumping?
While it never truly disappeared, figures from the Comparethemarket.com survey suggest gazumping is on the rise once more.
Property experts believe the coronavirus pandemic has played a role in the return of the home swiping process.
"Since the announcement of the temporary stamp duty relief in 2020 (which has now been reduced) the housing market has been extremely competitive," explains Andrews.
"The supply of homes hasn’t been enough to meet the demand and therefore prices have risen significantly over the last year, especially in the countryside and also seaside towns and villages."
Andrews says the various lockdowns and spending more time at home has lead to many people yearning for more space.
"People have been desperate to get out of cities and into homes with space for home-working and gardens, and this means people with the money have been willing to pay over the odds to get what they want," she explains.
While clearly upsetting for those who have been gazumped, with many experiencing tough financial times, it is understandable that sellers want to get the most from the sale of their property.
"Things have also been tight financially for a lot of people over the last year and you can’t blame sellers for wanting to get the highest price possible for their property – even if it means letting someone down," Andrews adds.
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Should gazumping be made illegal?
Gazumping is currently legal in UK as the ‘agreement of purchase’ only becomes legally binding once contracts have been exchanged.
If a buyer is gazumped after their initial offer had already been accepted, they may also lose out on fees already paid on surveys, solicitors, and obtaining a mortgage for the property.
It's unsurprising therefore than two thirds of people who have bought or tried to buy or planned to buy a house in the past 12 months want gazumping made illegal, the Comparethemarket.com survey found.
"Many of our members would like to see the law in England and Wales updated to follow Scotland, where gazumping is much rarer," Iain McKenzie of the Guild of Property Professionals tells Daily Mail.
"In Scotland, an agreement becomes binding the moment a written offer is accepted. With the demand for houses outstripping supply, it was only a matter of time before gazumping returned."
A solution to the gazumping issue could be found in the form of reservation agreements, which exist in Scotland as standard and have been introduced by some companies for homes in England and Wales, but as yet, have not been adopted across the whole property industry.
The HomeOwners Alliance has called for the government to bring more certainty into the process by introducing a standardised and legally binding 'reservation agreement'.
At the point of agreeing the price – but before either side spends any money – the home buyer and seller commit to being “genuine” to proceed with the transaction, and to pay the other side £1000 if they pull out, to pay towards their costs.
"The government produced reviews and draft documentation, and trials were meant to have been started in 2020, but clearly, the pandemic has pressed pause on any sort of roll-out. The government should urgently be thinking about resuming this work," says Abigail Farley, lead property counsel at Habito.
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Farley says the reservation agreement cost should be in line with the average cost of a house-sale falling through (around £1,000 each) and will ensure a firmer commitment is made from both parties, that is not prohibitively expensive and shouldn’t have an impact on mortgage lender affordability assessments.
“Of course, there are many reasons why property sales don’t go ahead, and these agreements won’t completely get rid of the instances of all failed sales. But, they would provide more certainty between both parties by legally tying in the buyer and seller to the transaction, for a stated period of time - effectively 'sealing the deal'."
How to gazump-proof your property purchase
Get everything organised beforehand
One of the easiest ways of preventing yourself from being gazumped is to get everything organised as much as you can in advance.
"Make sure your finances are in order and get an ‘agreement in principle’ for a mortgage," says Andrews. "This is a letter from a mortgage lender stating how much they would be willing to lend you based on an initial evaluation of your circumstances. Having this in place beforehand will speed up the process when you find the property you want to buy."
You should also already be in contact with a solicitor who is available and ready to get things moving as soon as you’ve found a property.
"Also, if you’re selling at the same time as buying, then you should definitely already have your property on the market," Andrews suggests. "Better still, waiting until you have an offer on your current home before making an offer on your next home will mean you won’t have to wait and frustrate your sellers who may already have their next purchase lined up and want to get moving."
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Ask if the property can be taken off the market
Once your offer has been accepted, Andrews suggests speaking to the seller to see if they’d be willing to take the property off the market. "You should also ask the estate agent to remove any ‘for sale’ signs and to take it off their online listings," she adds. "This will prevent anyone else being able to see that the property is up for sale and will stop any last minute offers."
Though the seller is not legally obligated to do this, if they’ve accepted your offer, Andrews says you should question why if they refuse to do so.
Stay on the ball
The less time it takes, the less time there is for someone else to swoop in and make a better offer. so you want to make sure that you keep everything moving as quickly as possible.
"Keep on top of your mortgage broker and/or solicitor," Andrews recommends. "Ask them for regular updates and make sure that you do everything your end (signing and returning documents, for example) as quickly as possible.
Consider alternative funding to secure the purchase
Mortgage applications have been at an all-time high over the last few months and it can take 3-5 months to get things through. "If you’re worried about being gazumped, you may want to consider something like a bridging loan to secure the property whilst you’re waiting for your mortgage application to go through," Andrews explains.
Bridging is a short-term finance facility which can usually be arranged within two weeks, but it can be as little as 48 hours depending on the circumstances. "You would be able to use the loan to purchase the property in cash and then refinance it when your mortgage comes through," she adds.
Get to know the sellers
If you’ve done everything else that you can to prevent being gazumped, then it won’t hurt at all to also try and build up a bit of a relationship with the sellers.
"Getting on friendly terms and making them aware that you’re a serious buyer with your heart set on the property should hopefully make them less willing to drop you at the last minute," Andrews suggests.
