What is Gazumping?
Gazumping causes distress and misery to buyers involved in property transactions. Simply put, gazumping is when one buyer makes a verbal offer on a property, but the seller then accepts a higher offer from a different buyer. This can occur any time before the exchanging of contracts, and the first buyer can either make a higher offer, or lose the purchase and go back to square one.
Is Gazumping Legal?
Unfortunately, gazumping is legal in England and Wales because it is usually carried out before the exchange of any legally binding contracts. The exchange of contracts takes place in the later stages of the selling process, meaning there is a substantial delay between the verbal offer becoming legally binding.
The prevalence of gazumping in property transactions fluctuates depending on market conditions. The looming threat of BREXIT has led to uncertainty in house prices and has meant that gazumping is on the decline.
Statistically, first-time buyers and property buyers in London are the most likely to be gazumped. The South East region follows closely due to the notably higher house prices in these areas. The further North you travel the lower the incidence occurs.
Actions to Reduce Gazumping
Gazumping, quite obviously, has a negative impact on the house buying process – significantly slowing down transactions and leading to stress and anxiety for everyone involved. Over the past few years the government has taken steps to tackle it. In October 2017 Sajid Javid, the then Communities Secretary, embarked on an eight week consultation period on the issue and by April 2018 the government began to introduce strategies to ensure the market was more transparent. One of the measures included was the use of Voluntary Reservation Agreements.
Voluntary Reservation Agreements, also known as a lock-in or exclusivity agreement, can be used as a binding agreement between the buyer and the seller. This means that the buyer can reserve the right to buy a property for a certain period of time without the seller negotiating with any other parties, thereby eliminating the risk of gazumping.
If you need any help or advice regarding this or any other residential property issue, please contact the Residential Property team.