What is Gazumping and How Can Buyers Protect Themselves?
Buying a home is often considered one of the most significant decisions you’ll ever make. However, the process can sometimes bring unexpected surprises, and one of the most disheartening of these is gazumping. This article will provide a comprehensive guide to gazumping, explaining what it is, why it happens, and how buyers can take steps to stop it from ruining their property purchase. We’ll also clarify the roles and legal obligations of estate agents, highlighting where responsibility lies in these situations.
What is Gazumping?
Gazumping occurs when a seller accepts an offer on their property but later backs out of that agreement to accept a higher offer from another buyer. This typically happens before contracts are exchanged, leaving the original buyer disappointed and often out of pocket.
Unfortunately, gazumping is legal in England and Wales because a property sale is not legally binding until the exchange of contracts. As a result, sellers are free to change their minds, often swayed by a higher bid or other favourable terms from a new buyer.
Why Does Gazumping Happen?
Gazumping can happen for several reasons:
- Higher Offers: A new buyer offers a more attractive price, and the seller decides to maximise their profit.
- Delays in the Process: If there are delays in the mortgage approval, surveys, or conveyancing, the seller may become frustrated and consider other offers.
- Market Conditions: In a competitive housing market with limited supply, sellers may be tempted to entertain multiple offers.
- Uncertainty: Without a legally binding agreement before the exchange of contracts, sellers often feel free to explore their options.
How Can Buyers Protect Themselves from Gazumping?
While there’s no foolproof way to prevent gazumping, there are steps buyers can take to minimise the risk:
Get Mortgage Approval in Advance
Having a mortgage agreement in principle (AIP) before making an offer shows the seller that you’re serious and financially prepared. This can make your offer more appealing.
Move Quickly
Delays can make sellers nervous. Ensure you have a solicitor or conveyancer ready to act immediately once your offer is accepted. Quick action can reduce the risk of the seller entertaining other offers.
Request a Reservation Agreement
Reservation agreements are becoming more common in the UK and can offer peace of mind. These agreements require the seller to commit to the buyer for a specified period, reducing the likelihood of other offers being entertained.
Communicate Regularly
Keep in touch with the seller and estate agent to show your continued interest and commitment. Regular updates can help reassure the seller that the sale is progressing smoothly.
Offer a Reservation Fee
Offering to pay a non-refundable reservation fee could incentivise the seller to commit to you. However, this should be discussed with a solicitor to ensure it’s handled properly.
Whose Fault is Gazumping?
Gazumping is a contentious issue, and blame can often feel misplaced. Let’s break it down:
- The Seller: Ultimately, the seller is the one who decides to accept a higher offer. While it’s frustrating for buyers, sellers often see this as a financial decision.
- The Buyer: Sometimes, buyers who delay the process unintentionally leave the door open for other offers.
As the intermediary, the estate agent is often blamed; however, the estate agent has no choice as they have a legal duty to submit all offers to the seller. Therefore, they cannot be held accountable for gazumping.
What Does the Estate Agent Legally Have to Do?
Estate agents in the UK are bound by specific legal obligations, outlined by The Property Ombudsman and The Estate Agents Act 1979. Their responsibilities include:
- Submitting All Offers: Estate agents must pass on every offer they receive to the seller, even if the property is marked as “sold subject to contract (STC)” and regardless of whether it’s higher or lower than the accepted offer. This remains the case until contracts are exchanged.
- Acting in the Seller’s Best Interest: The estate agent’s primary duty is to the seller, which can sometimes create tension for buyers.
- Being Transparent: Estate agents must provide clear and honest communication to both sellers and buyers throughout the process.
- Adhering to the Law: Failure to follow these obligations can result in fines, sanctions, or being removed from industry bodies.
Can Estate Agents Submit Offers After a Property is ‘Sold STC’?
Yes, they can—and legally, they must. Until contracts are exchanged, a property is not legally sold, and estate agents are required to inform the seller of any new offers. While this practice can feel unfair to buyers, it ensures that the seller has all the information they need to make an informed decision.
Who Decides Whether to Accept an Offer: The Seller or the Estate Agent?
The final decision always rests with the seller. Estate agents may advise on the merits of different offers, considering factors like the buyer’s financial position and the speed of the sale, but the seller has the ultimate authority to accept or reject an offer. Estate agents act as intermediaries, offering guidance but following the seller’s instructions.
Is Gazumping Fair?
This question often sparks debate. From a buyer’s perspective, gazumping feels unfair and disheartening, especially when time, money, and emotional energy have been invested. However, sellers may argue that they have a right to secure the best possible deal for their property. The lack of legally binding agreements before the exchange of contracts leaves this grey area unresolved.
Should Buyers Consider Gazundering?
Gazundering—the practice of reducing your offer at the last minute—is sometimes seen as a retaliatory tactic against gazumping. However, it’s equally controversial and can damage your reputation as a buyer. While it’s legal, it’s not advisable unless you have a valid reason, such as discovering issues during a survey.
How Could Gazumping Be Prevented in the Future?
Many industry experts have called for reforms to prevent gazumping, including:
- Making Offers Legally Binding: Introducing a system where offers are legally binding once accepted would protect both buyers and sellers.
- Mandatory Reservation Agreements: Requiring both parties to commit to the sale with a deposit could reduce instances of gazumping.
- Improved Transparency: Encouraging clearer communication between all parties involved could help build trust and minimise misunderstandings.
Whilst people have called for these measures to be introduced, there is currently nothing in place to stop gazumping. Therefore, anyone is free to make any offer, which the agent must put forward to the seller right up until the property has legally exchanged.
The Importance of Exchanging Contracts Quickly
The exchange of contracts is the most critical milestone in any property sale. Until this point, the transaction is not legally binding, and either party can back out without penalty. By moving swiftly to exchange, buyers can lock in the sale and eliminate the risk of gazumping. To achieve this, ensure all paperwork is in order, funds are ready, and your solicitor is proactive in driving the process forward. Prompt exchange not only secures your dream home but also provides peace of mind for all parties involved.
Final Word
Gazumping is an unfortunate reality in the property market, but understanding the process and taking proactive steps can help buyers minimise the risk. It’s crucial to act swiftly, stay informed, and work with experienced professionals who can guide you through the complexities of a property purchase. While estate agents are legally obliged to put forward all offers, the ultimate decision lies with the seller. By knowing your rights and responsibilities, you can navigate the process with confidence and reduce the likelihood of gazumping derailing your home-buying journey.