Gazumping; Chains and Contract races

 

Common Problems

What Is Gazumping?

Until contracts are exchanged the sale is not legally binding. During the period between the acceptance of the offer and exchange, the buyer will spend money on surveys, solicitor’s fees, and confirmation of the mortgage offer etc ‘Gazumping’ however is when a seller accepts an offer from one potential buyer, but then accepts a higher offer from someone else. The first buyer is left in a difficult position, and either has to increase his offer or lose the property. If the sale falls through however all this expenditure is lost. This practice occurs when house prices are rising. If you are part of a chain, you could be affected by anyone else in the chain being gazumped so it is a big potential problem.

How Can I Avoid Being Gazumped?

If it does happen there is nothing you can do, but there are some ways in which you can minimise the risk of it happening.

  • Choose a vendor whose estate agent has a policy against gazumping i.e. the seller has an agreement with his agent to turn down any offers after one has been accepted.
  • Enter a pre-contract deposit agreement – both parties pay a deposit of 1.5% of the agreed purchase price and agree that contracts will be exchanged within 4 weeks. If one side withdraws the other receives both deposits. If you are a gazumped buyer therefore you  get compensation.
  • Take out insurance to cover your expenses if your purchase falls through.
  • Draw up an exclusivity agreement with the seller. In return for a fee you have exclusive rights to the house as long as contracts are exchanged within a certain period.
  • Require that the house be taken off the market once your offer has been accepted and the “For Sale” sign removed or replaced with “Sold”.
  • Keep the seller’s agent updated as to the progress being made in the conveyancing
  • Help speed up the sale by cooperating with your conveyancing solicitor in a timely way

If you are gazumped keep in touch with the seller’s agent. If the buyer whose offer they have accepted pulls out, they may contact you to ask if you are still interested.

The Chain

Where there is a whole chain of buyers and sellers i.e. you are buying a house but you cannot complete the purchase until you have sold your own; in turn, the buyer of your house cannot buy until they have sold their house; etc etc. If you are part of a chain, your own purchase will be delayed if someone a few links down the chain pulls out of their sale or purchase, or is gazumped. On the other hand If you are not part of a chain, this could be a good bargaining tool as it may encourage a seller to accept your offer over someone else’s higher offer as there is less risk of the sale being delayed.

Contract Races

If there are 2 or more buyers for a house, the seller may send out contracts to all of them. The buyers then have to race against each other and whoever sends the deposit and the signed contract first gets the home. Solicitors are required by law to inform buyers if they are in a contract race. Contract races occur when there is a shortage of houses or rising prices. Of course if you lose the race you waste all your expenses so be careful.

For more on conveyancing click on the drop down or revisit derby conveyancing solicitors.