Should gazumping be made illegal?
When selling a house, you can accept an offer then take a better one before you exchange contracts. It is legal in England and Wales, but is it morally wrong? We get both sides of the argument.
Yes
Paula Higgins from the HomeOwners Alliance, an advice and property services website
There’s certainly a strong case for gazumping to be made illegal in England and Wales, following the lead of Scotland, the US, France, Spain, Germany — the list goes on. In our home buying and selling system it’s not until the exchange of contracts that an offer is set in stone and the transaction legally binding with financial consequences for both parties if they pull out.
Yet long before the exchange of contracts a buyer could have invested hundreds if not thousands of pounds in a survey, conveyancing, local searches and mortgage advice. And there’s a human impact too. For many people buying a new home is sparked by relocating for a job, moving for a new school term or to be closer to family. Having found your new home and invested emotionally and financially in your move, only to have the seller accept a higher offer from a third party and push you out of the purchase can be very upsetting. Months later there you are, back to square one and out of pocket.
Bizarrely, the system fails consumers by enabling gazumping. If you take a look at property websites you will see many properties listed as sold subject to contract (sold STC), almost inviting other potential buyers to try their luck with an offer. And estate agents are legally obliged to pass those offers on to the seller.
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There’s not a lot you can do to avoid it. We advise getting home buyers protection insurance, which is relatively inexpensive, allows you to recover your costs if you are gazumped and is, as we like to say, a no-brainer. Apart from that we advise buyers to get a move on, booking their survey and responding to inquiries promptly to show that they are a serious buyer. And make sure that when you make your offer you make it dependent on the property being taken off the market.
In an ideal world the offer a seller accepts should be binding for the seller. They shouldn’t be able to accept an offer from a third party at a later date. Buyers could renegotiate the price if the conveyancing inquiries or a survey highlight serious problems, and could pull out before exchange of contract. But by having both parties bound to the transaction from the beginning we would expect the process to go much more smoothly.
No
Ryan Etchells from Together, a specialist mortgage lender
It would be controversial to legislate how owners can dispose of property they have worked hard to acquire, potentially compromising the value they can realise. Just as buyers have the freedom to withdraw from a sale at any time prior to exchanging contracts, sellers should have the freedom to accept a favourable offer.
If the government legislates how an owner can sell something that they have worked extremely hard for, where does it end? Dictating how people can sell a car? It’s a fact that in open markets things come down to supply and demand.
The root cause of the issue is the lack of housing stock and excess market demand. Instead of looking to legislate how people can sell their assets to solve the issue of gazumping, the government should be looking to follow through on the 300,000 new houses it has promised to deliver every year. Limited housing supply is the reason we are seeing property going to bidding wars.
A chain breaking down can cause a lot of heartache and stress for those who have lost their purchase, and those further down the chain who are relying on the sale can be plunged into chaos. These situations are not uncommon in the house-buying process, although gazumping is illegal in Scotland. But there are things that buyers can do to minimise the risk. Getting a mortgage in principle allows buyers to act quickly with the assurance that finance is in place, resulting in a swift, smooth process and reducing the window for gazumpers to swoop in.
There are times when options such as bridging finance can come into play. The speed and flexibility offered by these short-term loans can give those stuck in a chain the freedom to agree a sale before disposing of their property. They can get a head start on others who need to wait for the sale of their home before they can complete.
Sadly, with limited housing supply there will always be the threat of a higher offer scuppering a sale, but those buyers who arm themselves with agreed finances will have an extra card in their hand.