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Research suggests that nearly a third of recent sellers have suffered gazundering, which property pundits attribute to a downturn in the market. But, in some areas, the lack of suitable properties means there is still fierce competition for homes, with buyers trying to outbid each other via gazumping.
It is certainly a challenging time to be moving home. Unfortunately, some buyers and sellers are taking advantage of the current market to renegotiate the agreed price, threatening to pull out if their demands are not met. The good news is there are things you and your solicitor can do to reduce the risks.
With gazundering, the parties agree on a price, and the sale is proceeding, but the buyer then lowers their offer, threatening to pull out if the seller refuses to accept their reduced offer. Gazundering tends to be more common in a falling market, where the gazundering buyer exploits the seller’s fear that they may struggle to achieve the same price again.
Gazundering can happen at any time between accepting an offer and exchanging contracts. However, it is most common just before exchange. This is the moment both parties commit legally. As a seller, you will already have made a significant emotional and financial investment in your move, and the buyer knows this; it is the point at which their ultimatum is likely to have the most impact. The stakes are high, particularly if you are buying another property with your sale proceeds. If you call your buyer’s bluff and they walk away, you risk losing your new home too, particularly if your seller is in a chain of linked transactions. However, giving in to their demands could cost you dearly too. It can feel like a lose-lose situation.
Gazumping is the flip side of gazundering. It is generally more common in a rising market, but can happen whenever there is strong competition over a property. A seller accepts an offer from a buyer, and it seems like the purchase is progressing normally. However, the seller then accepts a higher offer from another buyer.
If this happens to you, your seller may invite you to increase your offer. This may secure your purchase, but it could escalate into a bidding war or a contract race. Even if the seller accepts your increased offer, you may find it hard to trust them, fearing they may try the same thing again.
Just like gazundering, gazumping can be costly emotionally and financially. If you decide to pull out, you will lose the benefit of the money you have already spent, for example, on a survey or conveyancing searches. If you are selling your own home, and are in a chain, it could also endanger that transaction unless you find a replacement purchase quickly or decide to move out anyway.
Most people consider both practices to be unethical, but neither is unlawful. Either party may change their mind right up until exchange of contracts. It is only then that the transaction becomes legally binding.
The Government considered changing the law to prevent gazumping when it reviewed the house-buying process in 2018. However, it found this would be hard to do without creating other problems. It also took the view that a greater commitment from buyers and sellers earlier in the process could reduce the risks.
Until there is a binding contract in place, both buyers and sellers are at risk of the other one changing their mind. So, minimising the time gap between offer and exchange will help reduce this risk. Specific action you can take will depend on whether you are buying or selling.
If you are a seller, you should address any issue that could delay your sale in advance. For example, your home may have an extension that does not have the requisite planning permission, or that needs consent under a title restriction. Applying for retrospective consent or taking out a suitable insurance policy could prevent this from becoming an issue later. Discuss your plans with your solicitor at an early stage; they can carry out a title audit of your property and pre-empt any issues.
It is also a good idea to consider your buyer’s position before accepting their offer. Ask yourself how proceedable they are. Generally, the more complex a chain the more scope there is for problems to arise. However, there is no hard and fast rule; sometimes a first-time buyer who has a mortgage offer in place may be less inclined to risk their purchase than a cash-buyer looking for an easy bargain.
If you are a buyer, make your offer conditional on the seller removing their property from the market. Their estate agent has to tell them about any offer they receive. However, if they are no longer actively marketing a property, the chances of receiving a better offer will be a lot lower.
Ensure you can proceed quickly and efficiently. Arrange your finances well in advance, and have your solicitor and surveyor lined up. Monitor the progress of your sale. Return any papers your solicitor sends you for completion and respond to their questions promptly. If you show you are a serious proceedable buyer, any seller should think twice about risking their sale. Where possible, develop a rapport with them; they will be less likely to renege on a promise if they like and trust you.
If you are a buyer, you may also want to consider a lockout agreement. This is a separate agreement that prevents a seller from selling to anybody else for a fixed period. In return, you undertake to progress your purchase diligently.
Lockout agreements do not suit everyone; they involve additional expense and negotiating one could prolong your purchase and unsettle your seller. However, they can be useful in some circumstances. If you are concerned about gazumping, discuss this possibility with your solicitor.
It is now also possible to take out a home protection insurance policy. This will not stop you from being gazumped, but it can help with the additional expense you may suffer as a result.
It may not always be possible to eliminate the risk of gazundering or gazumping, but there is a lot you can do to protect yourself. Either can be down to one party’s greed, but frustration and poor communication can also encourage these practices.
Due diligence at the outset, and understanding your buyer or seller and their motivation, will help. So too will having the right professionals on board. Our solicitors are proactive and communicate well, giving both parties confidence the transaction will progress as it should. That, and the swift resolution of any legal issues, is often the best safeguard against the perils of gazumping and gazundering.
For further information, please contact our residential property department using the form on this page. Alternatively, you can call us on 01453 847200 or email contact@wspsolicitors.com.
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