Gazumping defines when a seller of a property accepts a higher offer from another buyer and will cancel the offer that they had from their original buyer. The Government have identified this as an issue which is affecting the housing market and can cost buyers a lot.
The reason gazumping may take place is because, until the seller and the buyer exchange contracts they are not legally bound which means they are able to pull out at any time. This is so it will give the buyer the time to inspect for any defects, check the legal title and properly value the property.
However, this also gives the seller the opportunity to accept a higher offer from other people interested in the property.
The Government is looking for ways to stop sellers gazumping buyers during the conveyancing process. This article will review in detail as well as giving you some tips on how best to protect yourself from this happening to you.
Costs of Gazumping
Because the buyer and the seller are not legally bound until they exchange contracts there may be a number of different costs that the buyer could have paid by the time that they have been gazumped.
- Solicitors legal fee which could reach a figure of £750
- Property searches ranging from £265 to £450
- Mortgage application fee which could reach a figure of £500
- Mortgage survey ranging anywhere from £0 to £600
- Building survey ranging anywhere from £480 to £1,000
This results potentially in the buyer potentially losing up to £3,300 as a result of being gazumped!
What is the Government planning on doing?
The suggestion for this is a Lock-In Agreement which will tie the seller and the buyer into the offer, however this has negatives as well as a number of positives.
This agreement will need to address any issues found in the property because although the buyer will want to be protected from being gazumped they won’t want to be bound into an agreement if there are issues.
They will want to have completed the following: legal checks on the title, mortgage valuation, property searches and building survey. Any of these could flag a reason why the buyer might want to pull out of the purchase. Will the buyer be able to pull out without incurring a penalty if there is an issue with the property?
The Government will have to ensure if they enforce the agreement that all areas have been looked at, and all questions about it have been answered.
Will a Lock-in Agreement delay the conveyancing process?
The simple answer is yes. Under what circumstances can either the seller or the buyer pull out and at what financial cost? For a Lock-in Agreement to work effectively there will have to be financial penalties for breaching it.
Most buyers and sellers will want to get some legal advice before they sign a Lock-in Agreement because most likely they will not understand fully what it is about, and they will want to know every last detail if they are financially liable if they break it.
2 tips on how to protect yourself
1 No sale no fee conveyancing
These days there are many conveyancing solicitors offering a no sale no fee guarantee and you are well advised to instruct a firm which offers one. It at least protects you from losing the money you’ve spent on the solicitor’s work for the property you’ve been gazumped on.
2 Conveyancing costs insurance
There are many insurance providers who will offer you insurance, this is highly recommended. This will protect you against any losses that you may have incurred by the buyer during the conveyancing process. The cost of these can vary, but make sure you read all of the terms and conditions as there may be exclusions in some of these policies.
By Marcus Simpson
Digital Marketing Manager