How Homebuyers Can Protect Against Gazumping

Purchasing a home can be a stressful experience, whether you’re a first-time buyer or a seasoned one.

On top of the usual hurdles, the home buying process is often shrouded in uncertainty until contracts are exchanged, adding to the stress.

Regrettably, gazumping is a prevalent issue, particularly in England. It occurs when a seller, even after agreeing to sell the house to you, accepts a higher offer from someone else.

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.

In this blog article, we aim to empower homebuyers by shedding light on how they can fall victim to gazumping and offering practical tips on how to avoid it.

What is Gazumping?

Have you been gazumped? It happens more than you realise. Reality TV programs like ‘Location, Location‘ have often reported that a buyer’s offer has been gazumped, but they provide no details on why it happened or how it could have been avoided.

We know that gazumping can not occur once the sales contract has become unconditional, i.e., once all conditions have been met.

Gazumping occurs when a seller (vendor) accepts a higher offer from a buyer, having already verbally accepted an offer from another buyer.

A verbal acceptance is not legally binding, nor is a contract still conditional on terms being satisfied, such as a building inspection that the buyer likes and the buyer getting a mortgage. During gazumping, homeowners can sell the property to another buyer.

It’s crucial to understand the real estate process in different countries. For example, gazumping is more prevalent in countries where the sales contract process is lengthy, such as the UK, Wales, and Australia.

Conversely, the United States, Canada, and New Zealand can complete real estate sales transactions within weeks, sometimes even days. This knowledge will make you feel more informed and knowledgeable about the real estate market.

Did you know you can mitigate the risk of gazumping with gazumping insurance? This insurance serves as a safety net, covering costs such as loans, surveys, and legal fees in the event of property loss.

When is gazumping more prevalent?

You’re more likely to be gazumped during the following property market conditions.

A seller’s market

In competitive markets with high demand and low supply, sellers are more likely to be tempted by higher offers when there are many interested prospective buyers for a home.

Misunderstanding of legal rights

In countries where property sales are not legally binding until contracts are exchanged (e.g., England and Wales), gazumping remains a risk.

Caveat Emptor: Please note that the property is not yours until the seller accepts your verbal offer in writing. The seller has the right to hold off signing your sales contract. While they have your warranty, they can receive 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, also known as the vendor.

Why do we believe the deal is done with verbal acceptance? From an early age, we believe that everyone has the integrity to act on their words; hence, the popularity of the idiom: ‘My word is my bond.’ Unfortunately, it is not until we are older that we realise that not everyone follows 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 significant amount of money on building inspections, conveyancing, and other related expenses.

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 gazumping.

FOMO

The fear of missing out (FOMO) has motivated homebuyers to be cheeky and entice homeowners to consider their higher offer over the one they already accepted.

Avoiding Gazumping

There are effective ways to position yourself to secure the desired property. To help you out, we’ve put together some tips on how you can avoid being gazumped.

Home off the market

Ask the seller to take the property off the market once you’ve reached a deal. “To accept this offer, we need you to take the property off the market.” With the property no longer listed for sale, there’s less chance of being gazumped.

Insurance

Protect yourself from gazumping by taking out home buyer protection insurance, so that if someone gazumps you, you can at least claim back some of the costs involved.

Speed up settlement

Move through the buying process quickly to finalise the deal and avoid being gazumped in the first place.

Stay in communication with the seller.

Get comfortable with the seller so they’re less likely to accept another offer after helping you and seeing how pleased you are with the offer.

Agent tricks

Watch out for estate agent tricks. Some will let you know that there’s been a higher offer, causing you to fear being gazumped and thus encouraging you to raise your price.

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 be applied with the listing agent, allowing you to avoid their tactics. Remember, listing agents are paid a commission based on the sale price, so most are motivated to achieve the highest price at all costs.

Final Words

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 or taking out insurance to cover losses should the deal fall through.

Get financial advice before offering a higher price. If you’re lucky enough to have a property ready to close, focus on getting the contract to the ‘unconditional’ stage, where no conditions can prevent the exchange of title and payment.