We can define gazumping as snatching a property from the original buyer at the last minute when the seller accepts another buyer's (usually higher) offer.
In most cases people are gazumped due to a higher offer, but sometimes the seller accepts another offer for a different reason, for example, to speed up the sale. This usually 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.
Unfortunately, apart from being disappointing, especially if you lose out on your dream home, this also means that you could lose any money already paid out during the home buying process. Arrangement fees, valuation fees, survey fees, as well as legal and conveyancing fees are all paid out before the contracts are exchanged. The loss could amount to thousands of pounds if the seller backs out towards the end of the transaction.
In the worst case scenario, buyers could even find themselves stuck without a home, if they’ve already sold their original property and the seller backs out of their new purchase.
Gazumping is more prevalent in England and Wales, and less common in Scotland. This is because estate agents in Scotland are usually qualified solicitors, so are bound by the law society code, which prohibits accepting an offer from another buyer once an offer has been accepted.
There is no law to prevent the seller from accepting an offer from another buyer anywhere in the UK, but due to the complexity of going around the solicitor, it’s much more difficult to accomplish gazumping in Scotland.
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).
In most UK property purchases there can be two to three months between agreeing a sale and exchanging contracts on a property, which allows ample time for gazumping to occur. The later in the process this happens, the more money the buyer loses.
Although the process of gazumping is not illegal in the UK, there are some steps you can take to reduce the chances of this happening to you when you buy a home:
Getting an agreement in principle (also known as a mortgage in principle) will help to show the seller that you’re a serious buyer who will likely have the finances available to buy their home. While it is only a conditional offer, it 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.
Having all of your documentation to hand, even after you’ve obtained an agreement in principle can prevent any delays in the mortgage application process. It’s also possible to get a survey before you make a formal offer and select a conveyancing solicitor you'd be happy to work with ahead of time, to speed up the process.
Stay in touch with your broker - or if you are managing your own purchase, with the estate agent and conveyancing solicitor - to keep on top of any requests and queries and help the home buying process go smoothly.
In reality, most sellers will be reluctant to remove the property from the market before contracts are exchanged, but there's no harm in asking. You may have more luck if you can instil confidence, possibly by providing proof that the process is moving along quickly.
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 you get to know them personally.
Most people have an emotional attachment to their homes, so showing genuine love for their property is often a good move.
If you want to go a step further, you could suggest a 'lock in' agreement (sometimes known as a lock out agreement), which 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 the both deposits back.
Although not all sellers will agree to this, it will likely be more appealing to those who have had previous sales fall through.
You could also consider home buyer protection insurance, which will provide some level of financial protection if the sale falls through for any reason. Policies vary but usually enable you to claim back some of your conveyancing fees, surveyor fees and lender fees (such as the arrangement fee).
It’s 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.
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:
Most sellers are tempted by a higher offer - you could increase your bid, but make sure not to overstretch yourself and get the backing of your mortgage provider
If another buyer promised to complete the purchase quicker - you could offer to do everything possible to speed up the transaction, as well as offering more money
Appeal to the seller’s sense of decency, highlight any advantages of selling to you, for example, if you have no chain or restate how much the property means to you
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.
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. None of these are typically refundable, so there is a real chance you could lose them 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 buyers protection insurance.
It’s difficult to quote what percentage are as a direct result of gazumping, but around one in three property sales in the UK fall through. Gazumping is more common when house prices are high when it’s a ‘seller’s market’ because sellers are more confident that they can achieve a higher price.
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.
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 with hostility, to try and save money or get more from the deal, but in many circumstances, the buyer is reacting to events further up the chain that have impacted their ability to honour their original offer.