Gazumping is the term used to refer to when a seller accepts an offer from one potential buyer, but then accepts a higher offer from someone else. The first buyer is left in the lurch, and has to decide whether to offer a higher price or accept that they have lost that house and continue looking.
This is more common in a buoyant market where there are more buyers than there are properties for sale.
The problem is that, until contracts have been exchanged, the sale agreement is not legally binding and either party can pull out at any time. Unfortunately agents are legally obliged to inform sellers of all offers made on their property, even after one offer has been accepted.
Tips for avoiding Gazumping:
Speed up the sale – the faster it is, the less opportunity there is for the seller to pull out.
If possible, look for a seller whose agent has a policy on gazumping.
Keep in regular contact with the seller’s and their agent so they know you are proactively pursuing the purchase. This way they are less likely to be tempted to consider any other offers.
Consider a pre-contract deposit agreement. This usually involves both parties paying an agreed percentage of the purchase price to a stakeholder, and agreeing that contracts will be exchanged within an agreed period. If one side pulls out the other takes both deposits. This is not a water-tight agreement because either party can pull out of the deal if they are willing to lose the deposit, but it definitely reduces the risk and if you are a gazumped buyer you get some compensation.
Ask your lawyer about an exclusivity agreement with the seller which gives you exclusive rights to the house as long as contracts are exchanged within a certain period. A fee is usually paid to the seller for the benefit.
Insist that the house be taken off the open market once your offer has been accepted to avoid the potential of other buyers coming along.
If you are gazumped make sure you let the agent and the seller know how keen you are on the property and ask them to contact you if the new buyer pulls out.
It is the practice of reducing the amount of the purchase price you have offered on a property after your original offer has been accepted. This is usually done during the contract negotiations before “exchange of contracts” has taken place. Remember until contracts are exchanged the sale agreement is not legally binding. The timing of this practice is usually intended to prevent the seller from rejecting the lower price, as the sale and any dependent chain of transactions could potentially collapse if they did.
It is more common in a slow property market where there are more sellers than there are buyers although it may also reflect a genuine downturn in property prices in a specific area.
The buyers reduced offer is usually accompanied by a threat to withdraw if the seller does not agree to the price reduction, placing sellers in a tricky position. Sellers are often buyers and therefore jeopardise their own purchase if their sale falls through.
Tips for avoiding Gazundering
Speed up the sale – the faster it is, the less opportunity there is for the seller to re-consider their offer.
Consider a pre-contract deposit or lock out agreement, where both parties pay an agreed percentage of the purchase price to a stakeholder, and agreeing that contracts will be exchanged within an agreed period. If one side pulls out the other takes both deposits.
Set a realistic asking price – the longer your house takes to sell the more likely you will be to consider a much lower figure.
Be upfront and honest about any defects – this prevents the buyer being able to cite these reasons for lowering their offer.
- Be reasonable and make a counter-offer – remember there are two sides to negotiating.
Gazanging, a term coined by In-Deed, relates to the practice when, having agreed a sale, sellers decide to remain in their property and leave their buyer “hanging”. Although not a new phenomenon it is becoming increasingly common due to the uncertain market and poor consumer confidence. For the first six months of 2011 an estimated 54,000 buyers were “gazanged” as an increasing number of sellers got cold feet.
Tips for avoiding Gazanging
As with Gazumping and Gazundering speeding up the conveyancing process is important. Sellers get cold feet as they become frustrated with legal complications and begin to re-assess their move. Keep the seller informed and choose a lawyer who is efficient at keeping the legal process moving.
Establish the nature of the chain – If you know your seller hasn’t put in an offer for an onward property you are more likely to be gazanged.
Get to know the seller and keep in direct contact – By doing this any potential issues and concerns can be addressed quickly.