Following a period of UK consumer research, the Government have proposed a trial plan to end ‘gazumping’ when buying or selling a house.
Deciding to buy or move home is a huge commitment financially and emotionally. From the minute your offer is accepted, your mind may switch to decorating swatches and paint samples as you prepare to celebrate the moment you pick up the keys to your new abode. However, there is a long way to go before the final packing box is loaded on to the removal van, with the chance of things going wrong before the sale is completed, including the upset and disappointment of being ‘gazumped’.
WHAT IS GAZUMPING?
‘Gazumping’ happens when a second party places a higher offer on the same house you want to buy, even after your original offer has been accepted.
If the seller accepts the second higher offer, the original buyers are rejected. Even if they’ve forked out for searches, fees, and other costs along the way (depending on how far along the house buying process you are) there isn’t a formal or consistent system for protecting buyers if a ‘better’ offer comes along. Gazumped buyers are often left out of pocket and in search of a new place to call home.
IS GAZUMPING LEGAL?
Yes. Whilst gazumping may seem unscrupulous, it is legal. Until house buying contracts are exchanged, buyers and sellers are not bound by a legal agreement. And because contracts are usually exchanged until the end of the sale, there is a chance you could still be ‘gazumped’ even if you have gone through a lengthy conveyancing process.
HOW COMMON IS GAZUMPING?
Around 25% – 33% of UK house sales fall through, bringing stress to those going through the UK home buying process, as well as wasting millions of pounds. While there is a risk of being gazumped when your new home is sold subject to contract, there are steps you may want to consider to prevent it from happening or to reduce the impact if you are gazumped.
Ways to avoid gazumping
- Buy home buyer protection insurance to compensate you from a house sale falling through
- Ensure all your documents, mortgage and solicitor are ready to prevent delays
- Ensure you communicate well with all representatives acting on your behalf to help the sale move as quickly as possible
WHAT WILL A PLAN TO END GAZUMPING LOOK LIKE?
Whilst some estate agents already have arrangements in place to protect buyers and sellers from a house sale falling through, this isn’t implemented consistently across all agencies throughout the UK. The Government’s plan aims to ensure that buyers and sellers, who experience a sale fall through, receive some form of compensation, through a UK wide reservation agreement.
WHAT IS A RESERVATION AGREEMENT?
A reservation agreement would be a contract to ‘lock’ buyers and sellers into the house buying process earlier. The agreement would help to prevent sales from falling through and minimise worry during a house sale, as it would make it harder for buyers to change their mind or sellers to accept a higher offer on their property.
HOW WILL A RESERVATION AGREEMENT WORK?
Reservation agreements are featured in the latest government guides to buying and selling a house. A pilot scheme will be rolled out in early 2020 to trial different approaches to a reservation agreement in areas in the UK.
A reservation agreement would see buyers and sellers placing a percentage of the offer, or a flat fee, down as a deposit. This money would likely be held in an escrow account held by a Solicitor until the sale is completed. Both parties would also be asked to sign an agreement committing to the sale for the duration of the house buying process.
If one party withdraws they would forfeit their deposit and the other party would be compensated or have their costs covered by the amount.
Until the new plan to end gazumping is introduced, homeowners and buyers may wish to arrange their own agreements or ask that the property be taken off the market. Our team of solicitors specialise in conveyancing, helping to ensure your house sale or purchase goes ahead as quickly and as smoothly as possible. If you have any questions about gazumping or would like some advice in relation to a house sale, speak to our team on 0151 424 5656 or drop into our Widnes office to find out more about our conveyancing service.