Buying a new house is exciting, especially when a seller or estate agent accepts your offer. You may end up thinking it is just in a short while before you move in. However, it can also be stressful for new buyers to find a suitable property that suits their budget and another big challenge is the possibility of gazumping. First of all, it is important to understand what gazumping is, when it occurs and what to do to avoid being a victim. This blog post will provide you with every answer to your question on Gazumping in real estate.
What is gazumping?
Gazumping is a common occurrence in the real estate business. A property seller and buyer agree verbally on the payment over a certain period. Later on, the seller or estate agent sells the same property to a different client who happens to bid a higher price than the initial buyer. Gazumping also refers to a state by which the seller requests an additional amount after one completes the payment of the property. Most estate agents ask for commission upon completion of payment of the property.
It is not often that sellers realise they are victims of gazumping. Some buyers are good at gazumping; for example, a buyer accepts a higher offer on the property then lower the amount last minute; this kind of buyer is a gazunder. A big problem with gazumping is that it will affect both parties; the buyer and the seller. Money and time will be wasted on mortgage application fees and property surveys before the buyer notices of gazumping.
Gazumping will never favour the first client. It will be either the initial buyer agrees to pay the extra amount agreed on verbally after completion of the first payment, or the seller sells the property to another potential buyer. Now let us look at what situation does this happen.
When can gazumping happen?
In most scenarios, gazumping happens before a seller and potential buyer sign contracts; this is when the buyer and seller make agreements verbally and through a handshake. There is legally binding to confirm the terms of buying the property. The seller gets the profit, especially in a high market, as they can still advertise the property to other possible buyers if there are chances of gazumping; this is that there are more buyers than properties when the market is in high demand.
Usually, The agent or seller of real estate keeps fluctuating the prices to different buyers until they remain with one buyer who gives the highest amount. As much as gazumping seems to be a funny act, it can happen to anyone if one is not careful and aware of it.
When gazumping occurs, the original buyer will have to search for another property to buy, whereas the seller will have to look for other potential clients. In most cases, gazumping ends up in a war between the first and second buyer in question on who will finally win. The first buyer will want to retain the property, whereas the other buyer offers a higher amount to own the property.
Gazumping is a big challenge in the real estate business. It affects both parties at large, although it affects the buyer the most. As the buyers decide to abandon the deal and hunt for other estates, it will involve more time and money. The gazumpers may raise the amount and fail to get clients hence, going at a loss of lower the amount even below the amount of the first client.
Gazumping also happens when the process of buying a new home takes longer than the period the parties agree to have completed payment. The longer a buyer takes time, the greater the chances of risking being gazumped. Always as a buyer, be swift and make early preparations before buying a house.
What to do to prevent gazumping as a buyer
So far, you have seen that gazumping is a small word and yet so stressful. If you are to get a new home, you must avoid being a victim. How?
1. Request estate agents or property sellers to remove the property from the market as soon as the agreement is accepted
Ask the seller or agent to remove the property from advertising sites, books and other potential viewers; this should be the first condition you agree to when making an offer. If the seller gives excuses for why the property will still be in books for viewing, then there are chances of gazumping. A good agreement will favour both parties’ demands, even if it is verbal. As this act may seem, by the way, you will identify whether the seller is serious or a joker.
2. Strategise on swift actions and plans
When making the offer, there are some things you will have to check first, such as; surveying. The faster you arrange for a quick survey of the property, the lesser your chances of being gazumped. Sellers will notice how serious you are to own the property, hence will give you the support and time to conduct pest survey. Some sellers sought other buyers not because the other buyer gives a higher price but because the agent or seller needs a quick sale and accepts payment from another buyer and declines your initial payment.
3. Get a mortgage in principle
What is a mortgage in principle?
The very first step before looking for a new home is to identify the size of mortgage you can afford. The easiest way to do this is by getting a mortgage in principle that will make lenders believe in your potential and lend you a mortgage. Mortgage, in principle, quickens the chances of one owning a property and a finance lineup. You may use a bank, who arrange for mortgage offers.
4.Accept a stronger offer
As much as discounts are pleasing when it comes to buying a new house, also look out for the possibility of gazumping if you offer low price than other buyers. If you accept a stronger offer, you will have the upper hand if any other buyers wish to own the property. Therefore, you will work within a time limit to complete payment without encountering buyers with a higher amount than the one you agreed with the buyer.
5.Ask the property agent or seller to get into a legal lock-in agreement
Lock-in agreement is also called exclusivity agreement. It is a legal binding agreement between the seller and buyer that stops the seller from negotiating with any other person to buy the same property within a fixed period. It allows the buyer to have time to plan for a mortgage and survey without having a fear of gazumping.
Property buyer and seller pay an equal amount of fee to bind the agreement. In case one party withdraws or changes the price, their payment s given to the other party. Keep in mind that the agreement will dig into your pockets, but it is worth saving your peace.
Many sellers may not agree to this agreement, nor signing the papers may be so much efficient, but consider it as a safe way of taking legal action.
6.Consider cash buying
It is advisable to sell your previous property before considering buying another one. Sellers and agents often consider selling their property to cash buyers as a quick and easy business.
7.Stay in contact with the estate agent or seller
As a buyer, build a friendly relationship with the estate agent and owner to avoid being gazumped. A positive relationship helps buyers to trust in you and will not look for other potential buyers. Sellers will make the process faster and easier through good relationships and will even give the buyer discount.
8.Hire a solicitor or conveyance early
In addition, consider getting a solicitor to speed up the buying protocol. Payments for the property will not be made directly to the seller but through a conveyancing solicitor for records and they also ensure early payments. You can find one with professional skills and experience in carrying out conveyancing quickly and efficiently.
If you are in doubt, get an insurance cover that will compensate for losses if there is gazumping. Of course, you may not be aware if there will be gazumping, but it is good to go in prepared.
10.Keep the sale active
Buyers need to be more active than the seller thought the buying process. Exchange contract terms, conduct quick surveys and return all paperwork. Bear in mind that getting a solicitor and mortgage in principle early enough makes the process of buying a new home easy and simple.
Oftenly, a buyer should check in to see how the process is fairing and give opinions where necessary. Push your solicitor, surveyors and lenders to ensure the contract papers are signed and paid early. Sellers are l to withdraw their terms and consider looking out for potential buyers when the buyer is active. The buyer should give limited options for gazumping to a seller. However, a buyer should conduct deep research to avoid disappointment and decide how to recover after gazumping.
How estate agents may respond to gazumping
Most situations of gazumping are the buyer being affected; little do we know that sellers and agents may be affected. State agents (some of them and not all) tend to encourage gazumping. After a buyer accepts paying a house from one seller, estate agents sell the same house to other various buyers. Other notorious estate agents increase the amount after a certain period or demand extra payment from a buyer upon completion.
Estate agents who include a commission on the original cost of a property to sell a house to another client; have a chance to gain from a gazumper who is the potential of buying the property higher than the agreed amount.
Other estate agents have anti-gazumping policies and rules against gazumping; therefore, they do not accept gazumping in real estate. It is challenging that real estate agents cannot stop gazumping even when they can. As a result of greed for money, agents agree with one possible client on paying and later giving a higher offer to another potential buyer. We can camp to argue this, but estate agents may greatly involve in gazumping.
It is upon the buyer to make a decision on the way forward and ask estate agents the possibilities of gazumping so act to take early precautions to avoid losing the property and having to search for another one.
A buyer needs to keep a close watch and contact the estate agent they are buying a house through. Push your solicitor to act fast and transactions active. If the estate agent realises that you are actively participating, they will be minimal chances for the agent to entertain any other buyer and start making agreements with them.
Having mentioned everything to do with real estate gazumpers, let us look at how sellers or agents can avoid gazumping.
How can sellers can stop gazumping?
Sellers should price their property accurately before selling them. If the price is fair and standard, serious buyers will flow in to show their interest; therefore, there will be no need for a buyer to look out for other buyers.
If the buyer and seller agree, a seller should ask the estate agent to remove the property from the market and start working on money transactions immediately. A buyer should not allow further viewings from potential buyers.
Sellers should consider accepting an offer from the best buyer and not necessarily one that gives a higher offer. Buyers who come in with cash or first-time buyers are much better than those who bid high and pay in small portions; this will help save on time and energy for both parties, even if the money is small.
As a seller, don’t feel afraid to keep following the buyer. Hire a solicitor who is professional and fast to initiate the selling process. The faster both parties exchange contracts, the fewer chances for gazumping. Always as a seller, keep in touch with the estate agent and conveyance or solicitor to ensure things are on your toes.
Consider selling out your property through other methods like property auctioneers or house buying services. They will handle the pressure on behalf of a seller, and there will be minimal chances for gazumping.
What a buyer can do in case of gazumping
Not always will a buyer be aware of gazumping. You may have done everything to avoid being a victim and still be disappointed in the end; that should not be an end for you. There are various ways to handle the situation and avoid future occurrences.
Show interest to own the property
First of all, do not break the agreement with the seller. Ask the seller or agent to retain the offer. You have to show your much interest to become the house owner and give them an impression that you had loved the house. Some sellers will stop reselling and give you time to complete or develop new terms that may favour you.
Consider making a higher offer
If the house or property was worth it, you might consider increasing the amount and gazump your gazumper. This way is much cheaper than having to restart the whole process elsewhere and making new agreements. You can try viewing other property on sale and make a comparison on whether to add the amount or start from scratch with another agent. Some people will raise the offer since they love the new home. Others become rational and put emotions aside.
Be a gazumping fighter
Buyers should be aware of gazumping when getting to the real estate business. If you happen to be a victim of gazumping, be ready to face it. No one says it will be easy to take back the property if there be a higher bidder. There will be gazumping fights, whereby the seller will notify the other buyer of your potential to increase the amount to make them make a higher offer than yours, and still, you will lose the property to the other party.
Sellers to be considerate
Sellers should also involve themselves in the process to avoid gazumping. A seller may consider the increased offer and see if it is worth it before initiating business with another buyer. Have a calculation on the amount spent on payments and its effects on the plans; you may realise that the initial offer from the first buyer is stronger and sensible to decline another buyer.
Gazumping is unfair to both parties but still happens and is legal in most parts. It makes much sense to know your budget, have the financial discipline and fast during the buying process.
MovingSorted.com offer conveyancing services that aim to complete the purchase exchange as quickly as possible. To work with a solicitor who will protect your purchase to the highest standard of care, get your quote here.