Gazumping

Gazumping is the term used when a vendor agrees to an offer from one prospective buyer, but then sells to another for a higher amount. This is fairly common in most of the UK (but not in Scotland), where it is responsible for ruining over 15% of property deals.

In Scotland, neither buyers nor vendors are allowed to pull out of a deal without penalty once an offer has been made and accepted, and so gazumping is practically unheard of there. However, the house buying process for rest of the UK allows either party to amend or withdraw from a sale at any time before the exchange of contracts (the point at which the sale becomes legally binding), which is usually up to 3 months after the initial acceptance of an offer. This means that vendors can cancel a sale before the exchange of contracts if they receive a better offer, or may even take the property off the market altogether if they think they can get a higher price later.

Beating the Gazumpers

You can reduce the chances of being gazumped by asking the vendor to sign a lock-out agreement, where you have the exclusive right to buy for a number of weeks. This will give you exclusive rights to the house as long as contracts are exchanged within a certain period. Some agents will also insist that vendors sign a binding agreement that any further offers they receive after acceptance of an offer must be refused.

Another way of beating gazumping is to reduce the time taken between the time the offer is made and the exchange of contracts. The introduction of the Home Information Pack (HIP) by the government is designed to help facilitate this. The pack must contain certain information such as evidence of title, the terms of sale, leasehold information, an Energy Performance Certificate and local authority searches. The HIP scheme was introduced on 1 August 2007, and is due to be implemented on a phased basis, starting initially with four bedroom properties and larger.

However, without a financial penalty (such as the loss of a deposit) it's unlikely that gazumping will be eliminated, particularly when some buyers are willing to pay much more than the asking price and may even pay in cash. This type of penalty could be arranged with a pre-contract deposit agreement, which would involve both you and the vendor paying a deposit of 1.5% of the agreed purchase price, and signing an agreement saying that contracts will be exchanged within a certain period. If one party withdraws from the sale, the other side receives both deposits.