Gazumping! What is it? And how do you avoid it.
What is Gazumping?
Gazumping is when a seller accepts an offer to sell from a buyer but then towards the end of the mortgage application process accepts a higher price from someone else.
Gazumping can also be when a seller requests a higher price towards the end of the transaction process.
This is usually bad for the home buyer as they may lose out on some costs which they have incurred already such as mortgage fees and conveyancing fees.
Is Gazumping Legal?
Well, gazumping certainly isn't illegal and and although a bit unfair, It is very much legal and there is nothing a home buyer can do to get recourse.
This is simply because until theexchange of contracts there really is no binding agreement in place.
Verbal agreements! I hear you scream. Yes,verbal agreements are not strong enough to secure the property and so a seller is fully within their right to walk away from a verbal agreement to sell at any time until the exchange of contracts.
Before contracts are exchanged you will usually employ the services of a conveyancer to carry out searches on the property and then manage the exchange of contracts.
This is truly the crucial part of the home buying process as it tends to make or break a sale. If conveyancing takes too long a seller might begin to shop for a better offer with other buyers and as a result gazumping could end up being a first-time buyers fate.
To prevent this it is recommended to use a conveyancer who technology plays a key part in their day to day work. This will at least give you some confidence that typical communication delays or ancient methods of doing things will not cost you your first home.
Another reason for Gazumping could be the real estate agents who desire to take as much profit in commision from the property and therefore will continue to market it even after a buyer has been found in the hope that they get a better price for it and therefore a higher commision for themselves.
Gazumping doesn't necessarily mean a higher offer has been accepted. The seller might just have run out of patience with you or the process and accepted a buyer at an advanced stage of the home buying process.
How to avoid Gazumping?
Ensure the seller takes the property off market;The easiest way to avoid gazumping is if the seller has agreed to take the property off the market and instructed their real estate agent to stop seeking more buyers.This will indicate a level of seriousness to you from the seller.
Take swift actions.
We have already mentioned getting a conveyancer who understands how swift things have to be and use technology to ensure they are as efficient as possible.Your conveyancer might also be able to assist you in getting insurance which would cover you in the case of being gazumped.
If You want to get a property survey you must also consider do this well in advance to prevent any further delays and ofcourse to allow you negotiate prices if need be.
Agreement in principle.
Getting a mortgage or agreement in principle not only marks you as serious to the seller but of course speeds things up once you have an offer agreed.
Finally, You could get an exclusivity agreement.
This is a binding agreement between you and the seller which stipulates that the seller cannot negotiate with anyone during a set timeframe whilst you continue the buying process.
This prevents you from being gazumped during that time frame but ultimately the seller can just delay the process and still end up gazumping you after the agreement comes to an end.
The agreement works by both the seller and bUyer paying a percentage of the property price e.g 1%. This amount will be lost by any party who tries to back out of the agreement or ignores the agreement.There will also be some conditions at which the price can be shifted or negotiates e.g survey reports or search reports.
The previous Communities Secretary, Sajid Javid announced a call for evidence to improve the experience of house buying and selling, making it 'cheaper, faster and less stressful.'He plans to prevent sellers from walking away from a home sale after a certain point.There is some hope after all!
what is Gazumping insurance or Home buyers Protection Insurance?
Gazumping insurance essentially covers you in the event the seller pulls out of a sale. You will be able to get a payout to recover some or all of the upfront costs of buying the home.
Gazumping insurance is usually purchased once an offer has been accepted on a property but at the very latest within 2 weeks of conveyancing work starting on the property.
Gazumping cover can last up to 6 months from most providers. Gazumping insurance costs up to £70 in most cases and is paid upfront not in installments.
Gazumping or home buyers protection insurance will cover you as long as you reside in the Uk and the property you are buying is within the UK.
Gazumping insurance will not pay out for retrospective costs hence costs incurred before the insurance was purchased. Gazumping or home buyers protection insurance will also not pay out for situations caused by you e.g you decide you no longer want the property.
What does Gazumping insurance or home buyers protection insurance cover you from?
Gazumping insurance essentially covers you from a few scenarios but this are all dependant on the insurance provider.
The main scenarios gazumpingwill cover you from include
The seller pulling out of the transaction for a variety of reasons such as a chain transaction failing. E.g the seller couldn't move into their new home because the seller couldn't get a mortgage to buy a new home.
The mortgage lender insisting on ratification work or the mortgage lenders valuation is much lower than the property price and offer the seller accepted.
Do you really need Gazumping insurance?
Well, that's really up to you but with thousands of pounds on the line a £70 Gazumping insurance might represent great value.
What is Gazanging?
Every conveyancer will tell you they dreamt up the word “Gazanging”.
Gazanging is a new problem faced by over 50,000 home buyers each year. It is the term used to describe when a seller abruptly pulls out of a house sale usually towards the end of the process.
This leaves the buyer with costs which cannot be recovered such as solicitors costs, mortgage fees and general expenses.
Gazanging usually occurs when sellers who don't really intend to sell but rather intend to see how much they could realistically get enter the market.
In some cases a seller will inflate their property price in the hope a buyer will come and make an offer. At this stage the seller should inform the buyer that they really do not intend to sell but this rarely happens and eventually ends up leaving prospective buyers & first time buyers out of pocket.
How to avoid gazanging?
The first step when you meet a serious seller is to ask them to take the property off the market and off all marketing websites.
This is a stipulation most serious sellers will adhere to. In some cases and for good reason a seller will not agree to this until you can prove serious intent to them.
A good conveyancer will also go a long way to reduce the chances of gazanging happening to you. This is because they will be fast and will carry little costs if the sale didn't go through.
These are referred to as no sale no fee conveyancers.
Over 15% of sellers get nervous with slow conveyancing and this can contribute to the likelihood of gazanging.
It is worth noting that regardless of how fast your conveyancer is, if you are in a chain: hence your seller is waiting on their conveyancer to check the home they want to buy or waiting on the conveyancer of their sellers home to check another home. This will of course be completely out of your hands.
Over 30% of sellers will usually not find an “appropriate home” to move into, so it is worth asking the seller what plans they have in regards to that and how far they are with those plans.
This will allow you to gauge their level of seriousness.
Look for a property where the seller will not need to buy – some real estate agents now advertise properties with no onward chain separately.
This could include:
- repossessions – but they usually want a quick exchange
- executor's sales, where the owner has died
- owner emigrating or moving into a nursing home
- buy a new house – fewer new homes are being built, but it is often possible to buy properties that are already completed, rather than having to wait months for builders to finish them.
- buy at auction – the sale date is fixed.