Purchasing a home can be a stressful experience, whether you’re a first-time buyer or have done it before. In addition to the usual challenges, there’s always the uncertainty of whether the house will be yours until contracts are exchanged. Unfortunately, gazumping is still common, especially in England, where a seller may accept a higher offer from someone else even after agreeing to sell the house to you.
In this blog article, we explore how homebuyers can fall victim to gazumping and provide tips on avoiding it.
Expect the unexpected with property sales, as no two purchases are identical. So much can affect the property sales process, including the seller changing his mind, so, unfortunately, you’ll be kept on your toes until the property is legally yours.
What is Gazumping?
Have you been gazumped? It happens more than you realise. Reality TV programs like ‘Location, Location‘ have often said their buyer’s offer has been gazumped, but there is no detail on why it happened and how it could have been avoided. We know that gazumping can not occur once the sales contract has been signed and exchanged between the two parties (buyer and seller).
Caveat Emptor: you need to know that the property is not yours with the seller’s acceptance of your verbal offer. The seller has the right to hold off signing your sales contract. While they have your warranty, they can accept another offer or return it to you at a higher price. The property is not legally the purchaser’s until both parties sign the paperwork, i.e. the buyer and the seller, aka vendor.
Why do we believe the deal is done with verbal acceptance? From an early age, we believe everyone has the integrity to act on their words, hence the popularity of the idiom: ‘My word is my bond‘. But, unfortunately, it is not until we’re older do we realise not everyone lives by the same etiquette.
Gazumping is legal. Even when your verbal offer is accepted, the seller can accept another offer. When this happens to you, it not only cheats you out of a house purchase but can also waste a lot of money in terms of fees for the building inspection, conveyancing and so on.
When it comes to large sums of money, integrity is often forsaken for financial gain, and the seller’s conscience is apparent due to the legality of the action of gazumping.
There are great ways to put yourself in the best possible position to get the desired property. To help you out, we’ve put together some tips on how you can avoid being gazumped.
- Ask the seller to take the property off the market once you’ve reached a deal so there’s less chance of being gazumped.
- Insure yourself from gazumping by taking out home buyer protection insurance so that, if someone does gazump you, you can at least claim back some of the costs involved.
- Move through the buying process quickly to finalise the deal and avoid being gazumped in the first place.
- Get comfortable with the seller so they’re less likely to accept another offer after having helped you and seen how chuffed you are to accept your offer.
- Watch out for estate agent tricks; some will let you know there’s been a higher offer, putting fear into you about the possibility of being gazumped.
Most deals are done with emotion. Therefore, the starting point is to seek to understand who the seller is and let them know your motivations for wanting their property. The same strategy can also work with the listing agent so that you can avoid their tricks. Remember listing agents are paid a commission based on the sale price, so they are motivated to achieve the highest price at all costs.
It’s not easy to deal with the prospect of being gazumped. Still, you can put in place mechanisms to protect your interests, including the possibility of making an even higher counteroffer if you’re financially able to. However, get financial advice before changing your offer and focus on getting the contract to the ‘unconditional’ stage, where no conditions can prevent the exchange of title and payment.