In high demand market conditions, such as those currently being experienced in parts of the UK, the demand for a particular property may be high and as such Vendors may be offered higher than the asking price and also buyers may be more willing to resort to tactics such as gazumping, to get the property they want.
So what is gazumping and why does it happen? How can you avoid, if you ever really can, becoming a victim?
As with many of the words we use in common language today the word ‘gazumping’ is derived from the Yiddish word ‘gazump’, which has a literal meaning to steal or cheat. The common use of the word today refers to the process where a Vendor (property seller) accepts an offer (usually verbal but may be in a written form, but is in any event before exchange of contracts usually) of a residential property and then, later in the process and usually after the buyer has spent time and money on the transaction, accepts a higher offer from another buyer. In this case the buyer is said to have been ‘gazumped’.
Under the provisions of the Estate Agency Act 1979 offers received on a property, even if the offer is a verbal one, have to be communicated to the client.
In England and Wales offers are subject to contract and until the exchange of contracts there is no redress for the buyer should the vendor decide to sell to someone else. The buyer could easily suffer a financial loss, not to mention time spent, if the sale falls through and in particular as the buyer may well have already paid for property searches, legal advice, survey fees, a mortgage application, etc…
Complaints about gazumping are most frequently heard during times when there is a ‘seller’s market’, i.e. a shortage of property on the market and/or one where there is a scarce supply of a particular property in a given location. Sellers may raise the asking price at the last minute, effectively forcing the buyer to either increase their initial offer or pull out of the purchase, something they may be relunctant to do having spend time and money on the process to that point.
How to avoid being a victim of Gazumping
- Instruct your solicitor to use exclusivity or lock-in agreements for non-refundable deposits
- Ask the seller to agree in writing to withdraw property from the market once verbal offer has been received
- Keep the seller and estate agent up to date on progress being made toward exchange of contracts
- Buy at an auction
- Buy using sealed bids
Initial Article courtesy of the Royal Institution of Chartered Surveyors (RICS)