Tags: camberwell, conveyancing. property, dulwich, estate agent, gazump Gazumping – Part 1
We thought it would be interesting to look at the issue of gazumping – an issue which, once you have been affected by it, is always a real concern when you re-enter the housing market. In this post we will look at what gazumping is and why it occurs and in a second post we will consider some of the possible ways to reduce or eliminate the risk of gazumping.
Gazumping is the phrase used when a seller accepts one offer on his or her property and then later, but before exchange of contracts, agrees to consider a higher offer from a second potential buyer and indicates that he may withdraw his acceptance of the first offer. The first buyers are then left in a position where they either have to increase their original offer to at least match the second buyer’s offer or risk losing out on the property. This is most likely to arise in a market with rapidly increasing prices or a market where there are too few properties available to meet the demand of buyers. Faced with this situation the first buyers almost always feel that they have been treated unfairly and it is usually the estate agent, acting for the seller, that feels the full force of their wrath.
Now let’s look at why this situation arises. When you are buying and selling almost any kind of asset you can make a binding contract without it having to be in writing. However, English law provides that certain contracts must be in writing to be valid. One of these contracts is a contract for the sale of land or an interest in land. So, to make a binding contract to buy a house or a flat, it must be in writing. This is the first reason why gazumping can occur. Until you have exchanged written contracts either party is free to walk away – you may think it is morally wrong for them to do so, but it is not legally wrong.
The second issue that contributes to the problem relates more to the position of the buyer in the conveyancing process in England. At the point that you, as a potential buyer, are putting in an offer for a property, you usually do not know enough about it to want to bind yourself to buy it at a particular price or, indeed, at all. You know you like the look of it but you do not know, at that stage, whether the seller actually owns it; you do not know whether it is structurally sound; you do not know whether the lovely extension was built after appropriate planning permission was obtained and you do not know whether there are proposals to build an abattoir next door to it in the near future. The conveyancing process that operates in England provides time, between having an offer accepted and exchanging written contracts, for investigation of matters such as these to take place. You, as a buyer, need time to gather more information and want to reserve the right to withdraw your offer or adjust it if anything significant, along the above lines, surfaces once you, your solicitor and your surveyor begin making enquiries. So, even if English law did not require a written contract, you as the buyer do not really want to commit yourself unconditionally at the time of making an offer on a property. In retrospect, if you get gazumped, you may wish that you had done so – but it would not have been wise or, indeed, possible.
The practice of gazumping hardly ever occurs in Scotland due to the different system of conveyancing that applies there. There have been calls for the English system to be amended to reduce the gazumping risk. However, in 2012, in response to a parliamentary question, Housing Minister Grant Shapps ruled out taking any action to stamp out gazumping stating:
“Home buyers and sellers in England and Wales are free to choose from a range of options, including some which give more certainty that their transaction will be completed.
These include ‘lock-out’ agreements, where the seller enters a binding agreement not to accept another offer within a certain period; ‘option to purchase’ where the seller grants the buyer a binding option to purchase the property at the agreed price within a set timescale; ‘conditional contracts’, where buyer and seller enter into a contract as soon as terms have been agreed, subject to certain conditions being satisfied; or ‘costs guarantee’, where both buyer and seller agree to pay the other side’s costs if they withdraw from the transaction.”
In the second post in this series we will look at each of the options mentioned by the Housing Minister and consider the pros and cons of each.