Once you’ve set your sights on your dream house, it can be highly frustrating to have it snatched away. Even if a verbal agreement has been made that you will buy a home, it is not legally binding until the contracts are exchanged. This can create uncomfortable scenarios if a new person comes in to steal the deal away at the last moment.
Is there a name for having a property deal stolen away by a higher bid at the last minute? Well, yes, there is. The blog below explains what ‘Gazumping’ is, whether it’s legal, and how to avoid it. Keep reading for all of these critical answers.
What is Gazumping?
Gazumping is when someone selling a house verbally accepts an offer on their property but later accepts a higher offer from someone else. This may be considered dealing in bad faith for the person who made the original offer. Unfortunately, until the exchange of contracts has taken place, very little can be done
Gazumping is relatively common in the United Kingdom. According to a survey by Market Financial Solutions, 31% of people say they have been gazumped while trying to buy a house within the past ten years. The practice is usually more common in a seller’s market because buyer competition is higher.
In most cases, gazumping will occur close to a house sale’s completion. This can make it increasingly frustrating for the potential buyer, who may have jumped through many hoops to reach this stage.
As things stand, gazumping is not illegal. Until the contract exchange has occurred, the seller is entitled to change their mind and sell to whoever they want. However, many people consider it highly unethical, as it can disrupt the plans of the previous bidder – especially if, for example, they had already given notice that they were leaving their last property.
Why do people Gazump?
A seller may accept a gazumping offer to maximise the money they make from their house. In many cases, the new offer will be several thousand pounds higher than the previous sum, which can make a big difference to many families.
In other cases, gazumping may occur because the previous buyer is/was dragging their heels during the selling process. If the seller is on a tight schedule and wants to get things done quickly, they may be inclined to accept an offer from whoever seems the most eager and efficient. An example of this may occur if the previous offer is from someone in a long property chain while the ‘gazumped’ bid is from someone who is a chain-free buyer.
Some property experts argue that gazumping becomes more commonplace during a recession or a cost-of-living crisis because, in these circumstances, every penny counts.
What is the difference between Gazumping and Gazundering?
Gazundering is often described as the opposite of Gazumping. While gazumping involves accepting a higher offer for a property at the final stages, gazundering is when a potential buyer drops their offer at the last minute, just before the exchange of contracts.
Potential buyers may do this if they feel they are in a position of strength – for example, if the seller needs to complete the deal quickly and has no other buyers lined up.
While both gazumping and gazundering are legal, they are widely considered immoral. Some people who believe in ‘karma’ try to avoid these practices because they think it may catch up with them at another point further down the line.
How to avoid Gazumping
While it is not always possible to avoid gazumping in every situation, there are steps you can take to reduce the likelihood of it happening to you.
Most importantly, preparation is vital when going into a house sale. Gazumping most commonly happens because the deal is taking too long, so if you already have the essential documents sorted out, this can work heavily in your favour. For example, if you have a mortgage agreement in principle, proof of your identification, and have already found a suitable buyer for your current house, a seller will typically view you more favourably.
It also helps if you can establish a friendly rapport with the seller. They will feel less guilty accepting a gazumping offer if they do not know you well – but if you have exchanged nice emails or outlined the emotional significance of the house sale to the estate agent, then this could reduce the likelihood of them hanging you out to dry.
Consider taking out home buyer protection insurance as a third solution. While this cannot prevent you from being gazumped, it can enable you to recoup some of the costs associated with the bidding process, such as conveyancing or survey fees. It would help if you spoke to an insurance/financial expert before committing to this route, as they can advise you.
Sometimes, a potential buyer will ask the seller to take the property off the market. While not every person will be thrilled about this idea, they are more likely to go along with it if you have developed a good relationship and if you can reassure them that the deal will still go ahead quickly.
Last but not least, you and the seller could create a ‘lockout agreement’. This contract allows you to buy the house within a set period. This can keep you to a strict timeline, thus keeping the seller satisfied and providing reassurance that gazumping will not take place.
Is accepting a Gazumping always a good idea for a seller?
Believe it or not, accepting a gazumping offer only sometimes works out in the favour of the house seller.
Sometimes, accepting the gazumping offer will slow down the completion date. It can also sometimes result in the seller being ‘hasty’ in rushing the deal through and, therefore, missing some crucial details, such as vetting the new buyer. For example, it is not uncommon for the new buyer to ‘gazunder’ the homeowner further down the line, taking them straight back to square one.
You may encounter extra costs by accepting a gazumping offer, too. For example, if your conveyancer or estate agent charges by the hour, accepting a new deal will involve more work for them and could subsequently increase your fees. This may counteract the extra money you have been offered on the latest bid for your house.
Many sellers choose not to accept a gazumping offer because it is immoral, and they do not want to put the previous potential buyer in a challenging position.
Are there alternative options when I rush to sell my house?
Suppose you want to sell your property as quickly as possible. In that case, you don’t need to accept a gazumping offer. Instead, you could sell directly to cash house buyers like We Buy Any Home. We can complete the purchase within seven days if you wish. Get in touch today for a no-obligation valuation.
