Gazumping: What Is It And What Can You Do About It?
10th November 2017
Buying a home is an exciting and positive experience for many people, but there are a few things to watch out for. For some unlucky buyers, it’s made a lot more difficult by one thing: gazumping.
What is gazumping?
Gazumping is when another buyer outbids you on the home you’re in the process of buying after your offer has been accepted, causing you to miss out on the purchase.
It’s frustrating, demoralising, and can cause whole property chains to collapse, making gazumping bad news for almost everyone involved.
Is gazumping legal?
Unfortunately, gazumping is legal in England. However, although it’s not illegal in Scotland, gazumping is far less common. This is because most sales are completed through solicitors who are prevented from accepting more than one offer.
Even if your offer has been accepted, there’s no formal contract between yourself and the seller, so they’re under no legal obligation to stick with your offer. Sellers don’t lose out financially for choosing a higher offer, so it’s in their financial interest to go with the highest bidder.
Because contracts aren’t exchanged until fairly late in the homebuying process, homes are often still on the market for weeks while they’re ‘Under Offer (UO)’ or ‘Sold Subject to Contract’ (STC) - at which point it’s perfectly legal for someone else to make a higher offer.
Despite the seller verbally agreeing the sale, the sale isn’t formally agreed when a home is UO or STC. However, the buyer has usually still paid for conveyancing costs, surveys, and sometimes even mortgage fees. Being gazumped and losing out on the home can therefore be costly.
Will gazumping law ever change?
The government has recently announced that it’s looking at ways gazumping could be eliminated. Gazumping slows down the homebuying process and isn’t in line with the government’s plans to make home buying cheaper, faster, and less stressful.
Savid Javid, the communities secretary, has asked for those involved in the homebuying process - estate agents, solicitors, and mortgage lenders - to gather evidence around the effects of gazumping so they can then look at ways to improve the process, saving buyers time and money.
Although there’s nothing set in stone at the moment, buyers can be hopeful that the government’s recognition of the problem is a step in the right direction.
How to avoid gazumping
Get a Mortgage in Principle
Having a Mortgage in Principle once your offer has been accepted will help you move faster when it comes to completing the sale, keeping you ahead of the competition who may try to gazump you.
It’s a good idea to get a Mortgage in Principle before you start your search for a new home so you know how much you’re likely to be able to borrow. Having one also shows the seller and the estate agent (who both want a quick and easy sale) that in principle, you can afford the property and should be able to get a mortgage, making you a more attractive buyer and one that’s less likely to get gazumped.
Sellers want a quick sale, so having a buyer who is pushing the process along is a positive sign. Keep up the pressure on your solicitor and make sure you use a mortgage broker that keeps you in the picture.
Ask the seller to take the property off the market
Not all sellers will be prepared to do this, but if you’re concerned about being gazumped, it’s worth asking to take the property off the market. The seller may have had a sale fall through before and could be as keen to seal the deal as you. If you position yourself as a serious buyer and move quickly by organising a survey and starting your mortgage application, the seller will be more likely to accept your proposal.
Get gazumping insurance
Known as ‘homebuyers insurance’, this protection has the potential to save you thousands. Many buyers without insurance not only lose out on their purchase, but also lose out financially, having paid for solicitors, surveys, and valuation fees. If you’ve started to arrange your mortgage before being gazumped, you could also lose out on any mortgages fees paid to the lender.
Be aware of paying broker fees. If you do end up being gazumped, it’s more money to lose.
Gazumping and your mortgage
Once you’ve had an offer accepted, you can apply for a mortgage. Having a mortgage offer in place is attractive to a seller, as it shows you’ll be able to exchange more quickly without waiting for a mortgage offer, which can hold up the process.