House buying is one of the most stressful things you can do, especially if you choose to sell your house at the same time as buying your next house. It’s exciting when your offer gets accepted, but this excitement can soon turn to anger if the sell accepts an offer from another buyer. This is called gazumping, but is gazumping illegal?
Gazumping is not illegal in England and Wales and sellers can accept offers from another buyer “the gazumper” and not sell to the original buyer up to the point contracts are exchanged. The original buyer can increase their offer to stop being gazumped, but may not be able to afford a higher offer.
Gazumping happens more often in a buyers market when there are more buyers than there are homes to buy. It is also more likely to happen if the buying process takes too long, as sellers get annoyed when this happens.
Estate agents are legally obliged to submit all offer to sellers in writing, but sellers are not obliged to accept other offers.
What is gazumping?
Gazumping describes the situation when a seller accepts an offer on their property from a buyer, but then subsequently accepts an offer from another buyer. This subsequent offer maybe higher than the original offer or can be for a similar amount but from a buyer who can proceed to completion faster.
Quite often gazumping occurs some time after the first offer was accepted, which can cause anger and frustration for the original buyer, as they will likely have incurred legal costs and other buying costs including a survey fee.
Back in 2017, according to Estate Agent Today 12% of transactions in England and Wales were affected by gazumping. Gazumping is not good practice, but has unfortunately returned to the market in 2020 and 2021 with the Covid-19 pandemic and a spike in house sales.
There are 7 main ways to avoid being gazumped, as follows:
- Get confirmation from the estate agent the house is off the market.
- Proceed with your purchase as quickly as possible.
- Get a mortgage in principle before making offers.
- Become a cash buyer.
- Use a Lock-Out agreement.
- Build rapport with the sellers.
- Insure against gazumping.
1. Get confirmation from the estate agent the house is off the market will help prevent gazumping
One way to prevent being gazumped is to make sure the estate agent takes the house off the market before you commit to any costs. If the estate agent is reluctant to do this, you should proceed with caution, as there’s more chance of being gazumped in this situation.
2. Proceed with your purchase as quickly as possible will help avoid being gazumped
Speed is of the essence when buying a house to avoid the sellers getting annoyed and putting their house back on the market. You can speed the buying process up by being ready with a solicitor, and a good fast solicitor, and by making sure your house sale is already proceeding.
Make sure you put pressure on your solicitors during the buying and selling process to make sure your purchase happens quickly. If you want to know how to do this properly, I’ve written this article that gives 7 ways to put pressure on solicitors.
3. Get a mortgage in principle before making offers will help prevent gazumping
A large part of being ready to proceed and moving your purchase along quickly is to have a mortgage in principle before you make any offers. A mortgage in principle is whereby your chosen mortgage company will agree the amount they will lend, which is based on your personal finances and situation.
I recommend you use a mortgage broker to arrange your mortgage, as they will find the best deal that suits you. In the same way, you should get the mortgage broker to organise the mortgage in principle too.
Having your mortgage in principle in place will mean the mortgage application will be quicker.
4. Become a cash buyer will minimise the risk of gazumping
If you are a cash buyer you are less likely to be gazumped, unless another cash buyer comes along with a higher offer. The best way to become a cash buyer is to sell your house and rent before buying again. The other benefit of being a cash buyer is you can often be more cheeky with your offer when compared to a buyer who is in a chain.
You should take a read of this article “are you better selling your house and renting before buying again“. You should consider the 15 advantages I list in this article, one of which is there’s less chance of being gazumped. There is also a link to this article on the page, which explains how you could save £71,475 on your next house purchase by being a cash buyer. I recommend you take a read of this too.
But then you may also be interest to take a look at my course about “How to sell your house in under 2 weeks for more money“. Not only does this course help you sell your house quickly for more money, but you also get the Mortgage Savings Calculator Tool too. With this tool you can calculate your savings when you adopt this strategy of selling and buying houses, a tool you’ll not find anywhere else.
5. Using a lock-out agreement will prevent gazumping
Lock-out agreements are legally enforceable and binding contracts, so long as the lock-out agreement contains the essential elements of any contract and where there is consideration (i.e. money changes hands, which can be as little as £1).
For a lock-out agreement to be binding there must be certainty of terms, which includes:
- The seller agrees not to negotiate with any other person for an agreed period.
- This agreed period must be defined, for example; a fixed period of say three months. The lock-out agreement cannot include a clause that says “for a reasonable period“, as this is not a certainty.
- The agreement must be written in the negative, i.e. The Seller is not to negotiate with a third party for a period of three months from X date.
However, a lock-in agreement on the other hand is unenforceable, which is because they are “agreements to agree” and lack certainty. This was confirmed by the House of Lords, which at the same time legislated that lock-out agreements do constitute binding contracts.
6. Build rapport with the sellers is a way to help prevent gazumping
It’s always a good idea to build rapport with the sellers when you view their house, as this makes is less likely for them to want to gazump you. If you become more like a friend, they are less likely to want to mess you around. But then on the other hand, this will put more pressure on you to not want to let the sellers down too. It’s a win-win scenario.
I was in the situation where a new buyer came along who offered a significantly higher price on my house. But due to the fact I really liked the original buyer, but also that I didn’t particularly like this new buyer, I refused the higher offer. I remember this new buyer getting quite angry with me, but it didn’t feel right gazumping someone.
Whether or not you believe in Karma, like me you may feel that gazumping is not good karma so perhaps you shouldn’t do it. There’s a reason for the saying “treat others how you like to be treated“.
Do estate agents encourage gazumping?
Good estate agents don’t encourage gazumping, but they are obliged by law to submit all offers in writing to sellers. Which means the decision whether to gazump or not lies with vendors. There’s not much you can do if a determined buyer comes along, other than to reduce the chances of it happening.
7. Insure against gazumping to avoid being gazumped
Whilst having insurance to protect against your house sale falling through will cover any wasted costs, this solution will not stop it from happening in the first place. However, in many cases this insurance is only available to certain buyers, but if you get it, your risks of being gazumped are reduced.
Is gazumping illegal in Scotland?
Gazumping is legal in Scotland and can happen up to the point when missives have been concluded. But gazumping in Scotland is much less common, as often times houses are sold by solicitor estate agents who are bound by the Law Society of Scotland who are bound to stop gazumping.
Is gazumping legal in the US?
Gazumping is not legal in the United States, as in most states buyers make a written offer, which once accepted and signed by the seller, is binding on the seller. This contract is known as a “Purchase and Sale Contract“, which often has terms and conditions attached.
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