Learn the steps you can take to avoid having your dream home snatched away by a rogue act of Gazumping.
Finding your ideal home can be a long and exhaustive endeavour, and when you're a First-time buyer, the process of buying a house can often seem even more like an uphill struggle. So when you have finally found the property you like, it's only natural to jump for joy and begin to celebrate; but be warned, until the contract has been exchanged you're only one step away from being 'gazumped'.
What is Gazumping?
The term 'gazumping' refers to the act of an interested buyer making a higher offer on the house that you're already in the process of buying. If their new offer is accepted, you have been gazumped, and have been effectively pushed back to square one of your property search — often losing all the time and money you have invested throughout the process so far.
Gazumping is a very real threat to buyers, and especially First-time buyers who might be unaware that until the contracts have been exchanged , you're only one accepted offer away from having your property snapped up from under your nose.
In the majority of cases, gazumping will occur because a higher offer is made, and the seller wants to maximise the amount they receive from the sale of the property. However, in some instances, the timing of your offer could also be a factor in the seller deciding to take another offer.
While gazumping is not limited just to this scenario, gazumping can commonly occur when you're involved in a property chain, and the purchase of your new home is dependent upon the sale of your current property.
Is Gazumping legal?
While being gazumped is a significant setback for a buyer, and is seen as a bit of an unscrupulous act; gazumping is in fact, perfectly legal.
It's important to bear in mind that a property has not legally changed hands unless an agreement has been made between the seller and the buyer. As such, while your offer may have been accepted, it does not become legally binding until the contracts have been signed and exchanged.
Note: Gazumping is slightly different in Scotland than it is England and Wales - For more information on gazumping in Scotland, please see here.
Due to the fact that the contract exchange is the final stage of the house buying process, gazumping is a common practice that nearly always results in the buyer losing all the money they have already invested into the property.
Indeed, on this very site, you may often see a property listed as 'Sold STC' - this means an offer has been accepted by the seller, but the actual sale is still "subject to contracts" being agreed and exchanged.
What Can You Do to Avoid Being Gazumped?
So now you're aware of what gazumping is, now is the time to learn how to avoid it. Here are some steps that you can take to avoid having your perfect property pulled from your grasp at the final moment:
Fail to Prepare? Prepare to Fail
Before making any offer on a property, it is a good idea to have already lined up a mortgage in principle, as well as having a solicitor in place with all your necessary documentation to hand.
While it's worth mentioning that you could be gazumped at virtually any stage of the house buying process, having all your documentation and prerequisite material in place from the outset can speed up the process and ensure that there are no unnecessary delays, thus reducing your chances of being gazumped.
Speed is Paramount
Speed goes hand in hand with preparation and is one of the easiest ways to prevent gazumping.
As mentioned above, once the contracts have been exchanged the agreement to buy the house becomes legally binding, as a result, you will want to get to this stage as quickly as possible.
One of the main reasons why sellers choose to accept a late offer from a third party is because the original buyer is too slow to get through the process. As such, speed is often paramount to success when it comes to buying a home.
One of the key advantages of being a First-time buyer is the fact that your purchase is not dependent on the selling of your existing property; this, therefore, means that you are more likely to be the preferred buyer for the homeowner as in theory there should be fewer obstacles preventing you from completing the purchase.
However, please do keep in mind that just because you as a buyer are not part of a property chain, that doesn't mean that the seller is also chain-free. Should a seller be unable to agree to the purchase of another home, your sale might collapse. It is important, therefore, to ask the estate agent if the property is part of a chain, and if so, how many people are involved.
Insurance is Essential
In the event that another buyer comes in with a much higher offer than yours, there's very little you can do to stop the seller accepting it. However, to prevent yourself from losing all of the money you have invested into buying the property up until this point, you can take out Home Buyer Protection insurance to cover yourself in the event of gazumping or the seller changing their mind.
With Homebuyer Protection Insurance, you'll be able to claim back some of your conveyancing fees, survey fees and any other costs you may have had to pay out thus far.
The average cost of Home Buyers Protection Insurance is just £50 and is valid for 120 days, giving you sufficient time to complete the sale or claim back your lost funds.
Communication is Key
While estate agents and solicitors typically want to avoid their respective clients communicating with each other, taking the time to reach out to the seller can sometimes be the lifeline that you need to secure your desired property.
By reaching out to the seller and communicating your status with them, you will stand a higher chance of the seller recognising you as a serious buyer who genuinely loves their property. Be sure to keep the seller informed on how your buying process is going so that they can see you're actively doing all you can to complete the purchase.
While speaking to the seller is not a sure-fire guarantee that the seller won't listen to, and more importantly — accept a better offer, a little bit of communicating can go a long way to ensuring that you'll become the next owner of the property instead of anyone else.
Go Off the Market
One of the reasons why we stress that communication is the key to success lies in your ability to persuade the seller that you're a genuine buyer.
If you have managed to convince the seller that you're genuinely interested in buying their property, there is more chance that the seller may agree to remove the property from the market, thus significantly reducing the likelihood of you being gazumped.
While sellers are not obliged to take their property off the market simply because you requested it, they may be persuaded to do so if you're able to offer something in exchange to show the homeowner that you're a genuine buyer - Committing to a survey or providing proof of deposit often does the trick!
Consider a ‘lock out agreement’
As with getting a property off the market once you have made an accepted bid, requesting the seller to sign a 'lock out agreement' is not always a straightforward procedure.
A lock out agreement is essentially a contract between the seller and the buyer that states that the buyer has the exclusive right to purchase the property within a certain timeframe.
While lock out agreements limit the rights of a seller to seek the best deal possible for their property, these agreements are generally seen as a sign that you're serious about buying the property. Lock out agreements are often more popular with sellers who have had deals collapse previously in the past.
Should you wish to offer a lock out agreement, please speak with your conveyancing solicitor to learn more about the associated fees.
Beware of Underhand Tactics
While it would be unfair to paint every estate agent with the same brush, some estate agents may create a fake higher offer at the last minute in an attempt to get you to increase your bid, for fear of being gazumped.
Should this happen, it is important not to lose your cool and recklessly abandon the purchase or increase your bid without first seeing the offer in writing. As mentioned, not all agencies operate in this manner (and many will actively do their best to prevent gazumping). However, it is worth remembering that virtually all estate agencies receive commission relative to the value of their sale, so a higher-priced sale is often their top priority.
Should you be faced with a genuine offer that is higher than yours, it's also important not to overspend your original budget, as this could lead to other financial issues at a later date.
I've been Gazumped - What Can I do now?
Providing you have followed most of the steps above, you should be well-protected to avoid being gazumped. However, should a higher offer be made, it is worthwhile considering making an increased offer yourself - just be sure to stay close to your maximum budget, and don't overstretch yourself in the pursuit of your dream property.
How Can I Gazump Another Buyer?
While gazumping is considered to be slightly underhand and at worst a bit immoral, it is worth remembering that the third party buyer might want the property just as much as you. In some cases, the seller may be in need of a faster or more lucrative sale - after all, if you were selling your home wouldn't you hold out for the highest price possible?
If you're dead set on securing a property that is currently under offer, you can do the following to ensure you stand a fighting chance:
Develop A Rapport With the Agent
Much of your success in being able to submit a higher offer for a property that is already under offer relies on you having a good rapport with the estate agent handling the sale.
To ensure that your bid is presented to the seller well, it's a good idea to explain your situation to the agent and tell them why you love the property.
When presenting your case to the agent, you should play on your strengths as a prospective buyer, mentioning any positives that could swing the seller's decision in your favour.
Typically, cash buyers or First-time buyers who already have a mortgage approved in principle are more likely to be given preferential treatment by a homeowner and agency as they present a higher chance of completing the purchase.
Wherever possible, we would strongly advise that you give the agent more information than they possibly need, this way they can help you to build a stronger supporting argument for your offer - which just might land you the property you've been pining for!
Note: While we do recommend building a rapport with an estate agent (you may need them to help you sell your home someday!), it is important to remember that estate agents are legally obliged to pass on any other offers for the property right up to when contracts are exchanged.
However, while an agent cannot refuse to reveal your offer to the seller, they can play a vital role in the way your offer is presented - this is why a good story and mandate for what you intend to do with the house is key.
Understand the Current Situation
In order to see what you're up against, it is also a good idea to ask the estate agent what the position of the other buyer is.
While the agent cannot reveal every minute detail - such as the exact offer that's been accepted, they can give you a general overview of the situation, which should help you to pitch a stronger offer.
Equally, knowing the seller's position can play a vital role in securing your signature on the contract. Before presenting an offer, it is a good idea to ask the agent if the seller is looking for a quick sale or if they're part of a chain. As mentioned above, being a First-time buyer gives you a greater chance of successfully gazumping another buyer in this instance as your purchase is not subject to a chain.
When inquiring about a property that is currently under offer, be sure to ask how far along the current deal is, as if an offer was made just a few days ago as opposed to multiple weeks ago, it could prove to be the difference between successfully gazumping another buyer or not.
For instance, once a survey has been conducted, and the two parties are almost ready to exchange the contracts, an offer at this stage will have to be significantly higher than the current offer for most sellers to consider reneging on the deal in the closing stages. Meanwhile, an offer that is still in the early stages is likely to have a lower threshold.
An Offer they can't Refuse
While any offer you make will usually have to be higher than the current buyers for the seller to take the time to consider your pitch, it's worth noting that offering only a marginally improved offer is rarely going to swing the balance in your favour; especially if the current buyer is close to completion.
Depending on the value of the property you wish to purchase, you may need to offer a figure that is significantly higher than the accepted bid for the seller to consider going through the selling process yet again.
Rapid Reactions Required
As with submitting an offer on a property, the speed of the deal is paramount to its success. The faster you move, the more chance you have of gazumping successfully.
It is important, therefore to note that the closer it is to the completion date of the current offer, the less willing a seller will be to entertain other offers.
Gazumping in Scotland
Contrary to popular belief, gazumping in Scotland is notillegal; however, the nuances of the 'dark art' does work slightly differently in Scotland than it does in the rest of the UK.
Gazumping can occur any time during the buying process, up until the point where the contracts have been signed and exchanged. However, in Scotland, gazumping can only take place until the final 'missives' have been signed.
What are Missives?
The term 'missives' simply refers to a series of letters between the buying and selling solicitor which make up the contract for sale.
Once the final missive has been concluded, it acts as a binding contract between the buyer and seller that prevents gazumping or gazundering from occurring from this point. It is, therefore, in the best interests of both parties to conclude this step as quickly as possible in order to move to the final stages of the house buying process.
How Long Does it Take to Conclude Missives?
Unfortunately, there is no definitive answer to this question as the conclusion of missives can be affected by a great variety of external issues including (but not limited to) the inclusion of 'extras' in the sale, such as furniture and white goods, as well as contentious issues being identified in the Home Report.
How Long Does it take to Buy a Property in Scotland?
Buying a property in Scotland is on average, much quicker than purchasing a home in England, Northern Ireland & Wales. In the latter countries, buying a home could take anywhere from 8 - 12 weeks, with the time extending to as much as 18 weeks (just over 4 months!) if there are any considerable delays in the process. Meanwhile, in Scotland, the average time to buy a property is between 4- 8 weeks.
The Scottish Buying Process
As mentioned above, buying a property in Scotland can take a considerably shorter time than it would in England, Northern Ireland or Wales. However, despite the reduced time it takes to conclude a sale north of the border, there are still a few steps to consider:
Step 1: Obtain a Mortgage 'in principle'
Before bidding on a property, it is a good idea to understand how much money you can realistically afford to spend. In addition, you will also need a mortgage lender to confirm they're prepared to lend you the money you require.
Known as a mortgage 'in principle'; this is a vital step to ensure that your offer is seen as genuine and not a time-wasting endeavour.
Note: While you may be able to afford a higher value property, it is important to remember that buying a house will also include several other fees besides the mortgage costs. Fees can significantly affect the final price of your purchase, and also includes Scotland's Land and Building Transaction Tax - applicable on properties costing more than £145,000.
Step 2: Find a Solicitor
You'll need to find a solicitor before you'll be able to make an offer on a property.
It is a solicitor's responsibility to negotiate, check the contract and organise the transfer of the Title and money between yourself and the selling party.
As part of the solicitor's duties, they will be expected to deliver a 'Note of interest' to the seller's solicitors to demonstrate your interest in the property, and that you wish to proceed with the sale as well as being advised on any closing date to submit offers.
Step 3: The Home Report
In Scotland, a seller must provide a Home Report before the property goes on the market. A Home Report consists of three separate documents that are intended to give potential buyers more information about a property that they're thinking of buying.
A seller or their agent must give you a Home Report within nine days of you asking for it. If the seller or agent refuses or otherwise fails to give you the report within nine days, your local council's trading standards services can issue a fine of £500.
As mentioned above, this report must be made available before an offer has been submitted. The report includes three separate documents; The Single Survey, Energy Performance Certificate (EPC) and the Property Questionnaire.
The Single Survey
The Single Survey is a heavily detailed survey that is carried out by a qualified RICS (Royal Institution of Chartered Surveyors) regulated surveyor.
The Single Survey will document the condition of each aspect of your property within the report, and categorise them into the following three categories;
Category 1 = No immediate report is required
Category 2 = Repair or replacement requiring future attention, but estimates are still advised
Category 3 = Urgent repairs or replacement are required now.
While a property can still be sold if it contains Category 3 issues, it is highly advised to be fully aware of the scope of the problems before agreeing to purchase.
Upon receiving a Category 3 issue, you should also seek an estimation from the seller's surveyor on how much it will cost to repair or replace the damaged structure/feature.
The Energy Performance Certificate (EPC)
In a similar manner to the energy efficiency rating, you will often see on new electrical items, the Energy Performance Certificate (EPC) provides the buyer with essential information on how energy efficient their prospective property will be.
The EPC will be carried out by the surveyor and will provide you with additional information on how the homeowner or the current buyer can improve the energy efficiency of the property.
The Property Questionnaire
The Property Questionnaire is the final Home Report document; usually completed by the seller, the questionnaire will contain information such as the council tax band, parking status, a history of the alterations and renovations and other key details that could prove pivotal to the purchase.
Step 4: Making an offer (Missives)
Once you have reviewed the Home Report and are happy with the results, you now can decide on how much to offer for the property. The amount you offer is entirely up to you but can depend on a number of factors including:
The seller's asking price
How much you can afford
Similar-sized property prices in the area
Other offers the seller may have already received
Once you have decided on a price, your solicitor will send a formal letter to the seller's solicitor (known as missives), who will then present the offer to the seller. Depending on whether a closing date for offers has been submitted or not, this process could take several days or weeks to be confirmed or declined.
Should your offer be accepted now is the time to work out the specific contract details regarding your offer, including conducting any additional surveys.
Step 5: Agreeing the Contract (Conclusion of Missives)
Of all the stages in the Scottish buying process, this step is by far the most important of all. Once the conclusion of missives has occurred, both parties are now legally committed to the sale.
Once all the contract details have been agreed, the two solicitors will exchange letters, and as a buyer, you will now be expected to pay the agreed price - If you are a cash buyer, you'll need to clear the rest of the purchase price via your solicitor at this stage.
So Why is Gazumping Less Common in Scotland?
While the process of buying a property in Scotland still has several steps before the conclusion of missives can take place, there is another reason why gazumping is so uncommon in the country.
In many areas of Scotland, the majority of properties are sold by solicitor estate agents who are bound by the Law Society of Scotland, whom of which have strict guidelines in place that intend to stop gazumping from occurring.
Unlike in the rest of the UK, under the Law Society of Scotland's rules, once a seller's solicitor has accepted an offer on behalf of their client, the solicitor is no longer allowed to accept a subsequent offer from another party.
In the event that a later offer comes in and the seller wants to accept that offer instead, the seller's solicitor has to withdraw from acting on their behalf, and the seller will need to find another solicitor to complete the legal paperwork and proceed with the sale.
While there is, in theory, nothing preventing the seller from doing this, the convoluted process of changing a solicitor just to pursue another offer from a third party often means that the effort it takes to accept another offer is typically not worth the hassle.
In addition to the added time, it takes to find a new solicitor, the delay in the sale could endanger both the new offer and break any chain that the seller is currently involved in - which in turn, could result in the breakdown of their current sale.
As such, while gazumping is still technically legal in Scotland, it is far less commonplace due to the onus of accepting a new offer being placed on the seller rather than the estate agent.