If you are looking to buy a property, be prepared for the unfortunate act of gazumping. It’s tough not to get excited once you have an offer for a house accepted, but it’s important not to get carried away before all the contracts are signed and sealed.
What is gazumping?
If you have an offer accepted on a property, but another party then makes a higher offer for the same property which is then accepted – this is called gazumping. The new higher accepted offer means that you are priced out of buying the property and will have to look elsewhere.
Whilst the most common cause of gazumping is that someone has made a higher offer, it is also possible that the seller accepts another offer due to timing. If another party makes a similar offer to yours but is willing to pay up and get everything sorted immediately, the seller may choose to accept their offer.
Gazumping can happen any time before you’ve signed and exchanged contracts with the seller, and it can mean you lose out on any money you have spent getting ready to purchase the property.
Is gazumping legal?
When you have an offer accepted on a property, it will typically be listed as ‘Sold STC’ which means the offer is accepted but the sale is still ‘subject to contracts’. This means that gazumping is unfortunately legal, as the contracts regarding the original offer have not yet been signed and exchanged. Any agreement between a buyer and a seller doesn’t become legally binding until the contracts are exchanged between the two parties.
What can you do to avoid being gazumped?
The best way to avoid the disappointment of being gazumped is to be prepared and take the necessary steps to put you in the best position possible. Ways of getting prepared include the following:
Get Homebuyer Protection Insurance – Whilst getting insurance won’t prevent you being gazumped; it can allow you to claim back some of the expenses that you have had to pay out on. Homebuyer protection insurance can cover you for costs such as surveying fees and conveyance fees.
Get the Property Taken off the Market – Although the seller is not legally obliged to do this, you can request that the property you have had an offer accepted for is taken off the market. This is something you should ask whilst you are submitting your offer and you should get it in writing so that it is legally binding.
Be Prepared and Move Quickly – Ensure you are prepared to get the move and purchase processed as soon as possible. Before making an offer on a property, have a solicitor ready and a mortgage agreement in place. Whilst in the process of making your offer and it being accepted, keep in constant contact with your mortgage broker and all other relevant parties to ensure nothing goes wrong on your side. Keeping on top of things and doing all you can on your side can help move things along as quickly as possible.
Ask for Exclusivity Through a ‘Lock Out Agreement’ – Whilst making your offer, you can ask to include a lock out agreement. This is a contract between the seller and the buyer that gives the buyer the exclusive rights to purchase the property within a certain time period. A lock out agreement is obviously something the seller has to agree to and it should be agreed in writing.
Get to Know the Sellers – If you get on friendly talking terms with the sellers and are able to build trust and show you are a serious buyer, then there is a better chance the seller won’t be persuaded by a higher offer. Of course, there is no guarantee, but being on good terms with the seller and showing you are actively trying to move things along can only help your chances of not being gazumped.
What to do if you are gazumped
No one likes being gazumped and it is important that if it happens, you remain calm and consider your options. Be clear of your finances, as you may be able to submit a higher counteroffer and become the gazumper. However, be sure that you do not pay above what you are willing to pay.
If you don’t have the finances available to submit a counteroffer, the only other thing to do is to try proving to the seller that you are the right buyer to the property. Reassuring the seller that you are a keen active buyer that can be flexible depending on the sellers needs may swing the decision in your favour. Of course, there are no guarantees, but it is worth trying if you are really keen on the property.