What is gazumping and is it legal?
Gazumping occurs when a buyer has had an offer to purchase a property accepted by the seller, but before the sale is exchanged the seller accepts a better offer from another buyer.
As unjust as it may feel when you’re on the receiving end, the truth is that gazumping is a perfectly legal aspect of the property-buying process in England and Wales.
The reason for this is that an agreement to buy or sell a property doesn’t become legally binding until written contracts are exchanged which can come several weeks after an offer has been accepted.
Strictly speaking, a buyer can be gazumped if the seller decides to reject their offer in favour of another buyer’s for any reason, such as delays in conveyancing or financial arrangements, not simply for a higher bid.
What is causing a rise in gazumping?
The key factors leading to an increase in gazumping are:
1. A shortage of housing stock in Prime Central London
2. Fewer transactions taking place in the Super Prime Central London market and at more realistic prices – still strong – but not overvalued as has been the case in recent years
3. People are now starting to seriously consider buying property again. A lot of people want to buy/sell property before the UK is due to leave the EU later this year
4. Agents are currently under incredible pressure as there are so few properties on the market, leading to the overvaluing of property by 15 to 20%. This makes it very hard for a vendor to accept an offer than comes in at market value as they have frequently been misled by their agent
5. The readjustment in prices, limited stock and a desire to purchase property again is fuelling a rise in gazumping.
Tips to avoid being gazumped
Our advice to investors and property buyers is to compile a substantially written argument when submitting an offer on a property, instead of a verbal offer.
The written offer should include proof of funds and be written up by solicitors or with a financial broker's details to verify that the offer is reliable.
Building a reliable case makes it very hard for vendors not to take an offer seriously so we advise buyers to prepare comparable evidence for their agent to share in full.
We also strongly suggest offering a quick exchange period, preferably five working days. A speedy transaction is exactly what the vendor is looking for so having all the facts in one place is extremely attractive and much harder to turn down.
Recent cases of gazumping
Case Study 1 – Terraced house in the heart of old Chelsea
• INHOUS gazumped another buyer in November 2018.
• This property was on the market for 10 months without any interested buyers for a guide price £1 million above its final purchase price.
• Once the property was re-introduced at a realistic level it quickly had two competing bids.
• INHOUS offered a strong five working day exchange in order to secure the property (the standard is 14 days).
• As INHOUS was working as a search agent on behalf of a client, our offer was favoured. INHOUS put forward a strong offer combined with a good central London solicitor, proof of funds and the ability to turnaround the exchange in five days.
Case Study 2 – Five-bedroom property in the heart of Chelsea
• INHOUS gazumped another buyer in January 2019.
• This property was on the market for over a year and the price was then brought down to a realistic level. It then went on the market with two agents.
• The property was under offer just shy of the asking price but not exclusively. INHOUS was able to gain access through strong agency contacts and the ability to provide an already interested and vetted buyer.
• A five working day exchange and cash purchase secured the property through INHOUS for north of £9 million.
Case Study 3 – A mews property in Notting Hill
• INHOUS has also been on the receiving end of gazumping!
• INHOUS was gazumped in January 2019 on a property in Notting Hill.
• The property had been on the market for about a year, the price was then lowered to its true market value.
• INHOUS secured the property and got it under offer with ease.
• The day before contracts were exchanged, another buyer swooped in and gazumped INHOUS. This new buyer offered a 24-hour exchange as well as completion, as well as offering a significantly higher price.
• A 2- hour exchange and completion is unheard of – this shows a highly competitive market. The standard period for exchange is 14 days, even a five-day exchange is very strong.
*David Johnson is co-founder of INHOUS, an independent residential property consultancy