With one-third of property transactions falling through, what can you do to minimise the risk of being gazumped?
Gazumping occurs when a seller accepts a higher offer on their property after already agreeing verbally to a sale with someone else.
This usually happens when property prices are increasing, and it is taking longer than usual for the administrative work to occur. It can happen at any time before you have exchanged contracts.
Although gazumping can be considered unfair, it is not illegal. Neither is the opposite, termed gazundering. This is where the buyer reduces their offer at the last minute.
This is not the first time that gazumping has been a problem for buyers. It first became an issue in the 1980s but has returned due to the demand-driven market we are now experiencing. It is expected this is due not only to stamp duty holidays but also to people moving away from London to areas such as Norfolk, Suffolk and Essex as a direct result of the pandemic. With more people working from home, many are looking for more space to work flexibly.
With around one-third of all property sales collapsing because one party pulls out of the transaction, what can you do as a buyer to minimise the risk of being gazumped?
1. Ask the estate agent if they require the seller to reject any further offers
The buyer can ask the estate agent if they include in their terms and conditions that the seller of the property is required to turn down any further offers made after they have accepted an offer.
2. Ask the seller to enter into an exclusivity agreement
The buyer could also ask the seller of the property to agree to an exclusivity agreement. This fixes the price and prevents any marketing for a certain period up to exchange.
3. Reservation Agreements
Reservation agreements are being trialled and if these are introduced would mean parties would enter into an agreement and place money into a designated account. This money would be lost by the party who decides to withdraw without a valid reason.
4. Home Information Pack
The Home Information Pack is currently being discussed with a modified version being proposed which will shorten the period between exchange and completion.
5. Get insured
If another buyer comes in with a higher offer, there is not much you can do to stop the seller from accepting it. However, you can insure yourself against this by taking out ‘home buyer protection insurance’ which will allow you to claim back some of your conveyancing fees, survey fees and any other costs if the seller accepts another offer.
6. Be prepared
Make sure you have a mortgage agreement in principle in place, a solicitor lined up and all necessary documents prepared and at hand. Being unprepared can cause unnecessary delays increasing the risk of another buyer coming in with a higher offer.
There may be reasons for delays outside of your control such as illness.
Due to the current Covid-19 pandemic, there are provisions in place that protect the parties in the case of a “coronavirus event” preventing either side from completing on the transaction.
Covid-19 rider clause for completion date
- These clauses ensure that the parties are not in breach of contract if an event set out below occurs causing delay:
- The buyer or seller is complying with government guidelines such as lockdown or self-isolation
- Essential service suppliers such as removal services are complying with government guidelines or self-isolation
- The UK financial system fails to deliver transfer of monies to the seller on completion
- Unable to get witnesses to sign essential documents due to government guidelines
- Failure to deliver funds to the buyer’s conveyancer as a result of issues relating to Coronavirus
Both parties will then agree upon a new completion date.
It is important to note that the seller and buyer must minimise the extent of any delay arising due to the events above by pursuing a reasonable course of action to achieve the desired result.
What to do if you are gazumped
If you have done everything you can to avoid being gazumped and still find out that a higher offer has been made to the seller, then consider making a counteroffer. However, it is important to seriously consider whether you can afford to do so. Be careful not to make a reckless decision in the heat of the moment.
If you are unable to make a higher offer, then you can highlight everything about yourself as a buyer that works in your favour. For example, if you are a first-time buyer with no chain or are completely flexible on the moving date, this may be more important to the seller than a higher offer.
If you would like to discuss any points in this article further or are looking for independent advice, please contact Spire Solicitors LLP on 01603 677077.