Gazumping can be cruel and costly for the buyer who was let down by the 11th hour, but unfortunately it is not illegal. However, there are some steps you can take to avoid being gazumped.
What is gasification?
If you are thinking of buying a home, you may have heard of the term “gazumping” and have been told to be careful not to be “gazumped”.
Gazumping is the term used to describe when another buyer snatches the property away from you at the last minute by offering the seller a higher bid.
Normally, such a thing should not happen when you have already got your offer accepted and paid all of your mortgage arrangement, survey and transfer of ownership fees. But unfortunately, it can happen and leave you with no money, especially if you’ve already reached such a late stage in the home buying process.
In some cases, buyers have already sold their home and found themselves contemplating on their new home and have nowhere to live.
Unfortunately, there are no laws to prevent gazumping. And the seller can accept an offer from another buyer for any reason – it doesn’t have to be a higher offer. In some cases, the seller might even pretend that there is a higher bid at the last minute in an attempt to get you to increase your bid.
If there are delays with the transferor or if your mortgage application is taking a long time, the seller may also decide to take an offer from another buyer.
The problem of gazumping is more prevalent in England and Wales, but is actually less common in Scotland. This is because the home buying process is often administered by lawyers (rather than non-lawyer estate agents, as is more common in England and Wales) who have signed a bar code. , which prohibits accepting an offer from another buyer once an offer has been accepted. The law still doesn’t prevent the seller from accepting an offer from another buyer, but due to the complexity of bypassing the notary, the seller is likely to do so.
How to avoid being despised?
The key to avoiding being gazumped is to get everything you need to complete the home purchase quickly. The more delays there are, the more opportunity the seller has to consider other offers.
For example, you should try to get a survey, which takes time, before making the formal offer. You should also get a principle mortgage before you make the offer. A mortgage in principle is an arrangement that the lender, in theory, based on a basic check of your finances and suitability, would be happy to lend you. The mortgage in principle also indicates the amount they would be happy to lend you, which would reassure the seller that your offer is serious.
However, a mortgage in principle is not a guarantee – you will still need to perform additional checks and provide more details before you can get full approval for a mortgage.
Although a lawyer specializing in the transfer of ownership will help you arrange payment to the seller, it may be worthwhile to find one before you make the offer. Finding a property transfer lawyer that you would be happy to work with will speed up the process again.
Try to organize the following before you bid:
Mortgage in principle
You should also ask the seller to remove the ad after you have made the offer. It would not be unreasonable to ask the seller and the real estate agent to stop continuing to advertise the property, but they may claim to want to reduce the risk in case your offer fails.
If you want to go further, you can enter into a “foreclosure” agreement (sometimes called a foreclosure agreement), which is a binding contract that prevents the seller from negotiating with someone else.
It works by charging both parties (buyer and seller) a down payment, usually around 2% of the price of the house, which will be returned to both of you once the sale is complete. If for any reason the buyer or seller withdraws from the transaction (including gazumping), the injured party will be paid the deposit from the other person.
However, to get a foreclosure you will need a lawyer to help organize this and it might cost you a bit more on top of all your other legal fees, but it can give you some great peace of mind.
You can also ask an insurer to cover your property transfer, mortgage, and investigation costs if the deal fails, but you’re unlikely to get a good price for it.
If you can do what you can to act as quickly as possible through the home buying process, you should minimize the risk and have a better chance of getting your offer approved without major problems.
What Can You Do If Your Dream Home Has Been Gazumped?
If you’ve been the victim of gazumping, there’s not much you can do. Gazumping is legal, and if you’ve done everything you can to minimize the risk, the only thing left for you to do is come back to the seller with a higher bid.
You should check with the seller why they accepted another offer. Maybe it’s because the other buyer has promised to complete the purchase faster. In that case, you could offer to settle everything faster and perhaps with a higher bid.
However, it should be considered that if the seller has already accepted an offer from another buyer, what would prevent them from starting over? You could end up being used to helping the seller get a much higher offer, especially if the property is very popular.
Also assess how much your mortgage lender would be willing to give you and what your budget can handle.
Should you take out a larger mortgage?
You should only get a mortgage that suits your budget and your financial situation. Ideally, you should try to find a property within your budget and mortgage range, so that if you need to increase your supply, you can always do so.
With tighter mortgage affordability checks, it will be more difficult to get approval for a larger mortgage. If you’re surprised and need to increase your bid, you may face a significant delay in trying to get your mortgage approved again. So it’s best to get everything in place as soon as possible.
Would you lose money if you were a gazumper?
Potentially. If you’ve already arranged your mortgage, you will likely have paid mortgage arrangement fees. You may have already paid for a home investigation and for a lawyer to facilitate the process.
However, that doesn’t mean you should avoid doing these things until the last minute. You should always try to settle them as early as possible to minimize the opportunity for the seller to consider offers from other buyers.
Gazumping – your next steps
If you’ve been gazed, you may need to go back to square one. At the very least, you’ll have a better idea of what to do next time around to reduce the chances of being surprised again.
It is important to be firm with the seller and their real estate agent to get a clear timeline for completion and exchange. Sometimes, simple email agreements can make it difficult for the other person.