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Is it legal to Gazump?

So for those looking to buy a new home - whether seasoned purchasers, or first time buyers intent on getting on the housing ladder, the legality of gazumping will be of paramount importance.

The first thing to strike you is where such a strange sounding word came from and why did the legal profession adopt and adapt it to its present meaning. Gezumph, a Yiddish word, originally meant to overcharge; however since the 1970s to gazump has meant “make a higher offer for a house than another prospective purchaser (whose offer has already been accepted by the seller)” and thus succeed in acquiring the property.

For new home buyers, and particularly first time round, it must be heartbreaking losing the property they thought was going to be their dream home for many years to come. A property they thought they had made a binding contract to buy, and to add insult to injury gazumping they could be thousands of pounds out of pocket in up front costs they have incurred. Non refundable payments like surveyors fees, conveyancing fees and mortgage arrangement fees.

So now let’s get down to brass tacks – is gazumping actually legal?

I know it may seem totally unfair and inequitable but the simple truth of the matter is that gazumping is perfectly legal.

Conveyancers for property buyers in England and Wales exchange contracts with the solicitors for the seller quite late in the process, after many of the upfront costs mentioned in the previous paragraph have been incurred. This means that, typically there is a delay of several weeks between the seller accepting your offer and the agreement becoming legally binding.

During this period the seller is free to accept another offer instead of yours, usually because the offer contains a higher purchase price. However this is more likely to happen if there is a strong property market driving prices upwards. Estate Agents are obliged to pass on all offers (and they get commensurately larger commissions!). It is not beyond the bounds of possibility for the buyer to claim there is another offer to “squeeze” a little extra out of you.

In fact you can be gazumped without reason if the seller makes the decision to reject you offer for any reason whatsoever. It doesn’t have to be for monetary reasons, for example you may be having problems and being delayed with your conveyancer and mortgage provider. The seller would probably prefer to go with a buyer who already have their finances sorted and a mortgage arranged. Thus a quicker sale for the seller.

How do you avoid gazumping?

Two words, act quickly!

You are unlikely to have all the pieces in place when first you make an offer. There are necessary checks to be made. Necessary surveys take time, the sooner these are expedited the less likely you are to be gazumped.

Make sure your mortgage provider agrees in principle

Obviously the thing that must be sorted before you even start viewing properties is to get your mortgage provider to agree an advance in principle; this being a conditional offer in principal for a specified advance if certain conditions are met. Even though there are certain things that will have to be nailed down with regard to the paperwork the fact of having your mortgage advance in situ as a matter of principle will speed the process enormously.

So get your conveyancing solicitor on board straight away.

So finding a conveyancing solicitor you can work with in advance will speed things up, so check the marketplace and get a quote from a conveyancing solicitor. Because any payments you have to make are paid, on your behalf by your conveyancing solicitors be prompt in getting the necessary funds to them. Often they will hold it in advance to enable disbursements to be sent out without delay.

Next find a surveyor immediately.

Knowing the surveyor you want to use means you can contact them and arrange a survey just as soon as you are ready to set the ball rolling. We can advise you on getting a HomeBuyer report or a building survey here at nbmlaw.co.uk.

Next get the property taken off the market.

As part of your offer request that the property is no longer on the market. Although buyers are not obliged to take their property off the market, when the market has bottomed out they may be, surprisingly willing to go along with you on this.

Next you need a lock in agreement.

Sometimes referred to as a lock out, preliminary or exclusivity agreement; a lock in agreement is a binding arrangement by which the seller agrees to no negotiations with other parties for a fixed period. This gives the buyer a fixed time span when they have no fear of being gazumped.

The normal way these work is that the buyer and seller make an agreement to each pay a deposit of, say 2% of the purchase price. If either side attempts to go back on the agreement, either backing out of the sale or changing the purchase price when there is no good reason they forfeit their payment to the other party. The agreement in writing should state clearly those things that would make an alteration acceptable, for example any problems with the survey. The exclusivity clause granted by this written agreement would only be for a limited period, the usual time span being around 10 days from the contract being received.

There must be a provision for either of the parties being tardy in sending paperwork. Obviously it is a reasonable assumption that an agreement like this costs a certain amount of money. However you may decide that this extra cost is worth it in terms of peace of mind. Another thing for your consideration when you are choosing a solicitor.

Next you need to get insurance.

Finally insurance companies underwrite policies that would pay you an agreed amount if you did happen to be gazumped. You can never, obviously, obviate in its entirety the possibility that you may be gazumped, but if you adopt the boy scout principle of “be prepared” the risk can be minimised.

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