What is Gazumping and Why is it Happening?
Gazumping occurs when a higher offer for a property is made after an offer has already been accepted by the seller. This succeeds in obtaining the property, leaving the previous would-be buyer without the property and suffering a financial loss from incurred legal fees.
The national average for gazumping in England and Wales is 16%, but some areas where house prices are falling are seeing higher levels of gazumping. Sheffield and South Yorkshire City are the worst areas affected, at some 35% of would-be buyers being gazumped.
Where prices are still quickly rising, sellers are being tempted to go back on their word to a buyer if they can get a better deal elsewhere. Meanwhile in slower-moving markets, the lack of properties for sale is leading sellers to leave would-be buyers in the lurch if they get a last-minute offer from someone else.
As it stands, around 25-33% of all transactions fall through each year, costing approximately £270m per annum in lost legal fees and disbursements.
Still Alive and Well
With a legal system that allows sellers to abandon a sale weeks, or even months, after accepting their offer, even on the agreed day of exchange, could the solution be to introduce legally binding reservation agreements and digital legal packs?
The Government has pledged to make the house moving process quicker and less stressful for consumers. It is currently looking at the parameters of legally-binding reservation agreements including: how much money should be put down; the circumstances to which a consumer can pull out without any penalties to simplify the house-buying process; and removing the possibility of gazumping.
A reservation agreement would financially bind the buyer and seller at the point of a sale price being agreed with the estate agents, where an upfront payment would be made prior to further expenditure such as surveys and legal fees. This would provide movers with more confidence and certainty, helping to keep chains going and push transactions through in the hopes that it will reduce the frequency of gazumping. However, concerns as to what would constitute a legitimate withdrawal from a transaction on either side have already been raised by the industry.
How to Avoid Being Gazumped
At this stage there is no set date for an introduction of formal reservation agreements, but announcements are expected to be made later this year.
In the meantime, advice to all buyers and sellers to reduce the likelihood of gazumping is:
- To remain proactive during the transaction to ensure that the process progresses smoothly;
- Keep in regular contact with all parties involved to ensure that everyone is kept updated;
- Ask the seller to take the property off the market once you have had your offer accepted;
- Make sure your finances are in place and you’ve got a mortgage agreement in principle; and
- Have a solicitor ready to appoint at the outset who is available and proactive