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- Gazumping: What Is It, And Is It Legal?
Gazumping - what is it, and how can you avoid it?
Gazumping is when a seller accepts another offer on their property after a sale has already been agreed with a buyer, but before contracts have been exchanged. This can be extremely disappointing for the buyer, but also often leads to them losing money - and in some cases, even ending up without a home. We look at how best to avoid this troublesome tactic, and what to do if you get gazumped.
What is gazumping?
Gazumping is when a seller agrees to an offer on their property, only to then accept another buyer's offer before the original sale is legally complete.
In most cases people are gazumped due to a higher offer, but sometimes the seller accepts another offer for a different reason, such as to speed up the sale.
When can I be gazumped?
Gazumping typically happens during the mortgage application process, between the time that the seller accepts an offer on their property and the exchange of contracts between the buyer and seller.
What happens if I get gazumped?
Unfortunately, apart from being disappointing, especially if you lose out on your dream home, being gazumped also means that you could lose any money already paid out during the home buying process.
Arrangement fees, valuation fees, survey fees and conveyancing fees are all paid out before the contracts are exchanged. So, the later in the home buying process gazumping happens, the more money the buyer loses.
As a worst case scenario, buyers could even find themselves stuck without a home. This could happen if the buyer has already sold their original property and then the seller backs out of their new purchase.
Is gazumping illegal?
Gazumping is frowned upon and considered unethical by most people in the property industry but, unfortunately, it's not illegal. This is because an agreement with the seller is not binding until the contracts have been exchanged - which is why most sold properties display ‘sold STC’ (subject to contract).
While there's no law to prevent the seller from accepting an offer from another buyer anywhere in the UK, it’s much more difficult to accomplish gazumping in Scotland. Estate agents in Scotland are usually qualified solicitors, so are bound by the Law Society of Scotland's code, which prohibits accepting an offer from another buyer once an offer has been accepted.
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How to avoid gazumping
To boost your chances of a property purchase going ahead, here are six key steps you can take to reduce the chances of being gazumped:
1. Get a mortgage in principle
Getting an agreement in principle (also known as a mortgage in principle) will help to show the seller that you’re a serious and credible buyer who likely has the finances available to buy their home. Having an agreement in principle can increase seller confidence compared to a buyer without one.
This also has the benefit of speeding up your mortgage application when you decide to make an offer on a property, as the lender will already have the information needed to proceed.
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2. Be prepared and move quickly
You're often most vulnerable to gazumping in between having your offer accepted and exchanging contracts so now's the time to be organised and act swiftly.
Having all of your documentation to hand (such as proof of identity, proof of address, recent payslips, your P60, bank statements and evidence of your deposit) can prevent any delays in the mortgage application process. Having a solicitor lined up before you make an offer can also significantly speed up the process.
Stay in regular contact with your mortgage broker or, if you are managing your own purchase, with the estate agent and conveyancing solicitor. Keep on top of any requests and queries and help the home buying process go smoothly.
3. Ask the seller to take the property off the market
Once your offer is accepted, ask your seller or their estate agent if they'll consider removing the property listing from the market, which reduces the chance of other buyers seeing the property and potentially making an offer.
While sellers may be reluctant to remove the property from the market before contracts are exchanged, there's no harm in asking.
4. Get to know your sellers
In relation to the previous point, a seller may also be more willing to remove the property from the market, or at least decline further offers, if they're confident in your ability to proceed quickly.
Build a rapport with your seller, show your commitment to the purchase and demonstrate you'll be a good buyer to deal with. For example, where possible, it's a good idea to be adaptable to the seller's preferred timeline for moving. Showing flexibility and reliability could make it less likely a seller will accept an offer from a different buyer.
5. Consider a “lock out agreement”
A lock-out agreement is a binding contract preventing the seller from negotiating with anyone else within a certain period of time.
Both parties usually pay a deposit, which is returned when contracts are exchanged. If either party pulls out of the deal for any reason, including gazumping, the other will receive both deposits back.
Not all sellers will agree to this, but it may be more appealing to those who have had previous sales fall through. You'll need to speak to your solicitor to find out more.
6. Home buyer protection insurance
You could also consider home buyer protection insurance which will provide some level of financial protection if the sale falls through for any reason. While it won't stop gazumping from happening, it can limit the financial impact. Policies vary but usually enable you to claim back some of your upfront costs such as conveyancing fees, surveyor fees and lender fees (such as the arrangement fee).
Home buyer protection insurance is sometimes referred to as gazumping insurance, but can also protect you for other issues, such as the seller deciding not to sell. Usually the insurance is valid for between four and six months, depending on the policy, which should allow time for your mortgage application to be completed.
What to do if you've been gazumped
Unfortunately if you’ve been gazumped, then there is not much you can do, and sadly many people miss out on their dream home for this exact reason. It’s worth checking with the buyer what their reason was for accepting another offer, however. In some cases you may be able renegotiate, for example:
Increase your offer. Some sellers may be tempted by a higher offer, but make sure not to overstretch yourself or exceed your budget
Highlight the advantages of selling to you. For example, if you have a mortgage in principle, you'e chain-free or the property means a lot to you, remind your seller or their estate agent of your strong position.
Be patient. While this isn't ideal, if the new sale falls through, you may be next in line.
However, it's worth considering that if the seller has already accepted an offer from another buyer, what would stop them from doing it again? You might end up being used to help the seller get a much higher offer, especially if the property is quite popular.
Gazumping FAQs
Will I lose money if I've been gazumped?
If you’ve already begun the mortgage application process then there is a chance that you will have paid an arrangement fee and, if you’re further through the process, survey and legal fees too. None of these are typically refundable, so there is a real chance you could lose money if you’re gazumped, unfortunately.
However, delaying the payment of these fees can give the seller greater reason to go with another buyer, so it’s not really a situation that can be avoided, other than by using home buyer protection insurance.
What is the risk of a purchase falling through?
Around one in three property sales in the UK fall through, though it’s difficult to quote what percentage are as a direct result of gazumping.
Gazumping is more common when house prices are high, because sellers are more confident that they can achieve a higher price.
Can gazumping happen in Scotland?
Most estate agents in Scotland are solicitors, which means that they need to operate under the terms of the Law Society of Scotland - where gazumping isn’t allowed. It’s therefore much more difficult for a seller to accept a higher offer in Scotland, but not impossible, nor illegal for them to do so.
What is gazundering?
Not to be confused with gazumping, gazundering is when the buyer tries to reduce their original offer on a property or make additional demands that were not agreed as part of the sale.
This is sometimes done to try and save money or get more from the deal. However, in some circumstances, the buyer may be reacting to events further up the chain that have impacted their ability to honour their original offer.
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