When buying a property, the process can be littered with uncertainties and potential pitfalls. One of the most frustrating occurrences for prospective home buyers is gazumping. In this article, we delve into what gazumping is, whether it is legal, and the measures that can be taken to mitigate the risk.
What is Gazumping?
Gazumping is a term used in the property market to describe when a seller accepts a verbal offer from one buyer but then accepts a higher offer from another buyer before the sale is completed. This leaves the original buyer in a precarious position, often having spent time and money on surveys, legal fees and other costs, only to find themselves outbid at the last minute.
Is Gazumping Legal?
In the UK, gazumping is unfortunately legal. Property transactions are not legally binding until contracts have been exchanged, which usually happens several weeks after an offer is accepted. Until this point, either party can withdraw from the deal without penalty. This legal loophole allows sellers to entertain higher offers even after accepting an initial one, leading to the practice of gazumping.
Why Does Gazumping Happen?
Several factors contribute to the prevalence of gazumping:
- Competitive Markets: In areas with high demand and limited supply, buyers are more likely to offer above the asking price, tempting sellers to switch offers.
- Property Chains: When sellers are also buyers, they might accept a higher offer to secure their next property.
- Lack of Binding Agreement: The absence of a binding agreement until contract exchange creates an opportunity for gazumping.
Measures to Mitigate the Risk of Gazumping
While you can’t eliminate the risk of gazumping entirely, there are several strategies you can employ to protect yourself:
1. Request a Lock-in Agreement
A lock-in agreement, also known as an exclusivity agreement, is a contract between the buyer and the seller that stipulates a period during which the seller agrees not to consider other offers. While not foolproof, it provides some level of protection against gazumping.
2. Be Prepared and Act Quickly
Ensuring that your finances are in order and having a mortgage agreement in principle can speed up the buying process. The quicker you can move from offer to exchange of contracts, the less time there is for another buyer to step in with a higher offer.
3. Build a Good Relationship with the Seller
Establishing a good rapport with the seller can sometimes reduce the likelihood of gazumping. If the seller feels they can trust you and are confident in your ability to complete the purchase, they may be less inclined to entertain other offers.
4. Consider a Pre-Emptive Bid
In a hot market, you might consider making a pre-emptive bid that is above the asking price to discourage other potential buyers. This can be risky as you might overpay, but it can also secure the property and prevent gazumping.
5. Insurance Against Gazumping
Some insurance companies offer policies that cover the costs incurred if a purchase falls through due to gazumping. While it won’t prevent gazumping, it can mitigate the financial impact.
The Role of Estate Agents
Estate agents play a crucial role in the buying process. At Nicholas Humphreys, we strive to ensure a smooth and transparent process for all parties involved. We encourage clear communication and fair practices to minimise the risk of gazumping. Our experienced agents can provide valuable advice and support to help you navigate the complexities of the property market.
Gazumping is a legal but unfortunate part of the UK property market that can cause significant distress and financial loss for buyers. By understanding what gazumping is and taking proactive measures, you can reduce the risk and protect your investment. Whether it’s through lock-in agreements, quick action, building a rapport with the seller, making a pre-emptive bid, or considering insurance, there are steps you can take to safeguard against this practice.
For expert advice and assistance in navigating the property market, avoiding gazumping, and securing your next home, contact Nicholas Humphreys Estate Agents today. Our knowledgeable team is ready to support you through every step of your property journey.
