This often-used jargon term has fallen out of favour with the downturn, but when prices pick up it will doubtless once again become part of the vocabulary of buying and selling property.
The word describes the situation when a seller, having already accepted an offer from a buyer, then changes to accept a different, higher offer from a different buyer. Making a higher offer on a property that already has a ‘sale agreed’ is called gazumping: the unfortunate buyer who misses out on the home they had agreed to buy has been ‘gazumped’. This is not just bitterly disappointing – it can be very expensive, because the first buyer may already have spent hundreds of pounds on legal fees, mortgage applications and surveys. Their money – and ‘their’ new home, with the dreams and aspirations that went with it – are irrecoverably lost. They are back to house-hunting, poorer but no wiser, as it could just as likely happen again.
This, of course, happens more often in an upward market, when buyers are competing for desirable properties – although it can take place at any time if a ‘new’ buyer finds their dream home only after the original sale has been agreed, but before it has been transacted, or if a potential buyer suddenly finds a buyer for their own home, and so is newly in a position to make an offer.
How can it happen?
Gazumping is possible because there is no legal status to an agreement to buy and sell a home in England and Wales. It is only when contracts have been exchanged that a property sale becomes binding in law. Until that moment, the buyer and seller have nothing but each other’s word to rely upon, and either is perfectly entitled, by law, to change their mind and pull out of the deal.
Can it be stopped?
No. As an act of good faith, the buyer (or the estate agent) will usually ask the seller to take their home ‘off the market’, and to display a ‘sold’ or ‘sale agreed’ sign. Estate agents will stop promoting the property, and will usually stop taking viewings on the home. It’s sometimes thought that estate agents encourage gazumping, but in practice it is the opposite… agents are usually happier for an agreed sale to go ahead without complications. Gazumping undermines this, and can cause mistrust all round. For the agent, who earns a small percentage of the final sale price, the difference between the offers makes only a very small change in the fee, so there is little reason why an agency would want to encourage it.
But, however much an estate agent might not wish to see a gazumping bid, the agent is legally obliged to pass on every offer made to the seller. It is an obligation of the Estate Agents Act 1979 that an Estate Agent has to pass on every offer made on a property – even if it is already ‘sale agreed’. The agent may refuse to undertake more viewings, and may make it clear that the home is sold, but until that contract is exchanged, the agent has no choice if another buyer insists on making an offer.
That’s when it becomes really complicated. The estate agent is working for the seller, and is both legally and morally bound to give the best advice and service in the seller’s interest. The buyer is not the estate agent’s client. A gazumping offer will be higher – often significantly higher – than the original offer. Also, the new prospective buyer may well be in a better financial position – less dependent on a mortgage, or perhaps even a cash buyer with no house of their own to sell. The agent has to give the best advice to the seller, and sometimes there is a clear case to go with the new offer. Indeed, even if the agent feels that it is better to stay with the first agreement, the seller may be swayed by the prospect of more money. More often than not, the gazumping offer will be accepted, even if the original buyer has already incurred costs and set their hopes on their new home.
Is it wrong?
Legally, definitely not. Morally… that’s a hard question. Certainly the original buyer gets a very rough deal. But it’s also very hard to expect the seller to turn away a bigger, better offer. Many sellers do feel a personal or moral obligation not to break their original agreement… but, if the gazumping offer is tens of thousands of pounds higher, that is a very hard decision to make. It’s not necessarily fair to expect anyone to sacrifice such a large amount of money just to keep to an informal agreement with no legal status. Remember, too, that both the new buyer and the seller get what they want, even at the expense of one disappointed party. But it’s clearly not a very nice situation for those negatively affected.
It’s interesting to note that in Scotland, where the buying process is different, the acceptance of an offer is the close of the legal process, so gazumping can’t happen. Perhaps it would be better to extend that system south of the border. But, until the law is changed, gazumping will be an occasional part of the picture when houses are bought and sold. Just don’t blame the estate agent!