Is Gazumping On The Rise?
Instead of being a time for celebration, having an offer accepted on a property is proving to be a nail-biting period fraught with anxiety for UK home buyers.
Why is this? It’s all down to the resurgence of gazumping – one of the dirtiest words in the language of property.
Let’s delve into what gazumping is, whether it’s on the increase and what, if anything, can be done about it.
What is gazumping?
Gazumping refers to when a seller – having previously accepted an offer from a buyer on their property – withdraws from that agreement to accept a new, higher offer from another buyer. The first buyer has then been ‘gazumped’.
It’s something which is perfectly legal – although opinions differ on whether the practice of gazumping is ethical. The general consensus is that nobody likes to be gazumped – but many of us would gazump if it meant a better outcome for ourselves and our family.
In some cases, the other buyer may not even be aware they’ve gazumped you – although the seller certainly will.
Gazumping happens because up until the exchange of contracts, there is no legal obligation whatsoever to go ahead with the sale. This means that the transaction can be broken by either party without any legal ramifications.
Have you heard the expression “there is no honour among thieves”? Well, there’s also no honour among buyers and sellers in a hot property market. Although none of us would gazump someone for fun, securing the best price for our property is something which unites us, so try not to demonise those to blame for our gazumping – we’re all human after all.
How much does gazumping cost?
Having said that, it’s easy to see why people get so infuriated over gazumping. Being gazumped costs prospective buyers an average of £2,400 each time it happens (yes – some have been gazumped more than once).
Why does being gazumped cost money? The answer is that the cost of being gazumped boils down to the upfront fees which will have already been paid by the buyer towards the sale.
There’s no way to hang back on these costs, either. After their offer is accepted on a home, a buyer needs to move quickly and instruct solicitors, book a home survey and get a mortgage arranged as soon as possible. This is to ensure a smooth transaction without any unnecessary hold-ups. But getting these things in motions costs money – with fees totalling an average of £2,400.
If the buyer is then gazumped, these fees are wasted with no way to recover them. There is one exception – if the buyer is covered by Home Buyers Protection Insurance, commonly known as gazumping insurance, they can get their money back and carry on their search for a new property unscathed.
Is gazumping on the rise?
According to statistics from the HomeOwner’s Alliance (HOA), gazumping is now the leading reason for a property sale falling through in England and Wales. In fact, nearly 40% of buyers admitted they’d knowingly gazumped another buyer – with the average difference in the two offers a staggering £16,000.
This shows the highly competitive nature of the market, with buyers (including overseas buyers) ready to swoop in and snatch properties from buyers who are already half-way through the transaction.
Why isn’t gazumping illegal?
This is a good question. Considering it’s such a common pitfall in home buying, it’s astonishing the government hasn’t closed this loophole. But gazumping remains legal and will remain so for the foreseeable future.
In Scotland, gazumping is actually illegal. There, both buyer and seller are legally bound to the transaction from the point of formal offer acceptance, so anyone buying property in Scotland is safe from gazumping. Similarly, the USA property market has measures in place protecting buyers from gazumping, involving the signing of a binding contract before the buyer has started forking out cash in preparation for the completion of the sale.
In England and Wales, however, there is no such legal protection in place, leaving buyers vulnerable to losing, and as a result, gazumping is on the increase.
Why is gazumping on the rise in the UK?
During the post-lockdown property boom and the stamp duty holiday of July 2020 – June 2021, gazumping was rife across the UK property market. This is because the eagerness to move once the country opened up again as well as the rush to complete sales before the stamp duty holiday ended, led to some pretty fierce competition among buyers.
What’s more, a switch to remote working saw workers relocating to a more affordable areas now they no longer needed to be in the office five days a week. Buyers moving out of London or the South also brought with them a little more cash to spend thanks to the higher house prices in comparison to elsewhere in the country.
How to protect yourself from gazumping?
The ugly truth is, there’s not much you can do if someone makes your seller an offer they can’t refuse.
To reduce the risk of being gazumped, there are a few things that you can do. You can make yourself more attractive to sellers by being a chain-free buyer, try to ensure a smooth and speedy transaction by chasing your solicitor every day and if you’re lucky, you might be able to persuade the seller to take the property off the market while your conveyancing process gets underway. However, when faced with an offer £16,000 higher than yours, you can’t blame a seller for being tempted into breaking your agreement.
The only possible way to protect yourself from the devastating financial effects of gazumping is by taking out Home Buyers Protection Insurance, commonly referred to as ‘gazumping insurance’.
This cover doesn’t prevent you being gazumped, but it means you can reclaim part of all of the money you’ve spent on mortgage lender fees, conveyancing, solicitor’s fees, estate agency fees and surveyor’s fees should the sellers withdraw their acceptance and go for a higher offer.
It also offers priceless peace of mind during that nerve-wracking period between offer and acceptance and completion, meaning you can sleep a little easier without the prospect of gazumping hanging over your head.