If you’re new to the property market you’ve probably come across the terms gazumping, gazundering or gazanging, and you’ve probably wondered why the conversation has descended into nonsense words.

Even if you’ve had some experience in the property market it wouldn’t be surprising if you can’t recollect the meaning of these obscure words. The average Briton only tends to move house once every 23 years and considering the process is considered one of the most stressful things a person can do in their lifetime, you’d be forgiven if you had completely blocked out the entire experience from your memory.

So, what is Gazumping?

When a property is up for sale on the open market, potential buyers will make an offer to the seller to purchase the property. Unlike, a transaction in the supermarket, purchasing a property isn’t as simple as swapping the cash for the item. There is a legal process that is undergone that often involves solicitors and conveyancers whereby the property is inspected, and contracts are written up before the property can change ownership. This process can take a long time.

Gazumping is a term used to describe what happens when a seller who has accepted a verbal offer on their property with one buyer only to pull out of the transaction and accept a higher offer from another buyer.

Gazumping can happen at any stage in the property transaction until the sale becomes legally binding at the point where contracts are exchanged. It is one of the most frustrating things a buyer can experience when trying to purchase a property.

What is Gazundering?

Gazundering usually happens toward the end of the process, just before the contracts are exchanged and the transaction becomes legally binding, it is where the buyer lowers their previously agreed offer. The mentality behind gazundering is that the seller could potentially be desperate for the property to sell and will feel forced to accept the lower offer, rather than finding another buyer.

Sellers who are using the sale of their current property to buy their next property are particularly vulnerable to gazundering because the delays caused in their sale can then adversely affect the purchase of their next property.

And Gazanging?

Gazanging isn’t as common a term to come across, but it is a term that essentially describes when a seller gets part of the way through a transaction with a buyer only to get cold feet on the sale and choose to keep the property for themselves.

This doesn’t happen as often but can become more common when the market starts to change. For instance, if house prices start to drop sellers will likely opt to wait until the prices begin to rise again before selling.

Why does Gazumping occur?

Gazumping has always been a part of the UK property market, except in Scotland where there are now laws in place to prevent it. As frustrating as it is for buyers, for sellers it can help them get the best price for their property. The likelihood of a buyer being gazumped can be exacerbated by a few different factors, most are out of the control of the buyer, like the state of the property market.

Currently the property market is favouring sellers because there are more buyers looking to buy than there are sellers selling. The Financial Reporter recently claimed that “it’s thought there are around 29 buyers for every residential property sold in the UK.” Where buyers are competing so fiercely with each other for the limited stock the chances of a buyer being gazumped by another is inevitably going to rise.

Buyers are having to prioritise the speed of the transaction, as the quicker they can act and move through the process the less time another buyer has, to move into position to place an offer on the same property.

Unfortunately, for some buyers, they can’t act quick enough. Those who are purchasing through a mortgage and must arrange the finances, or those dependant on the sale of their current home can face delays that are out of their control and can ultimately cost them to lose out to buyers who are able to move faster.

A survey of 500 buyers who had purchased in the last ten years found that one quarter of them had been gazumped because they were stuck in a property chain and took too long to complete. A further 20% were gazumped due to the delays of getting a mortgage. However, despite the frustrations felt by buyers when they are gazumped, nearly half of the survey admitted that they would consider gazumping a rival buyer to get the property they wanted.

Even the most organised cash buyer could face issues with gazumping because, as we have previously reported, the conveyancing process has risen to an average of 150 days. That’s 150 days in which another buyer can move in and steal the purchase of the property.

How much does Gazumping Cost Buyers?

The larger problem with gazumping is around the cost. Buyers can lose out on solicitor and surveyor fees whenever a property sale falls through. Property Reporter has found that 1 in 4 UK sales are falling through which is costing buyers £607m every year. For the average homebuyer that’s a cost of £2,700 and for 10% of buyers whose sales fall through it can cost them over £5000.

For those buyers who are gazumped the only way to keep their property sale on track is to gazump their rival buyer back. This competition between buyers is what’s still driving house prices up even though experts have been predicting a drop in prices. One third of buyers have ended up paying over the asking price for their new home which has cost them an average overpayment of £16,000.

It’s not just a financial toll that being gazumped takes, as Paresh Raja, CEO of mfsuk.com, points out, “missing out on a property can be the source of a great deal of frustration and emotional damage.” Of the 500 buyers polled, 17% of those who had been gazumped have gone on to report that they bought a property that they like less.

How to prevent Gazumping

When buying through private treaty, unfortunately, there isn’t a sure-fire way to prevent youself from being gazumped. All a buyer can do is ensure that they are keeping the process moving as fast as possible and that they are as organised as possible.

That means finding the right conveyancer, solicitor and surveyor as early as possible and sorting out a mortgage in principle if you plan to purchase this way. Being organised not only helps speed up the transaction, limiting the possibility of being gazumped, it can also add value to your offer as sellers are also often motivated to get through the transaction quickly.

Once you’ve had an offer agreed you can limit the chances of being gazumped by making the property harder to find. This will involve asking the seller to take the property off the market whilst you undergo the transaction process. It’s a standard practice but still doesn’t guarantee that you won’t be gazumped.

The only other option in a private treaty sale is to enter into a Lock-out Agreement. This is a legally binding process that prevents the seller from negotiating with any other parties during a set period and involves both the seller and buyer putting down a sizeable deposit as collateral on the agreement.

Lock-out agreements don’t come without there risk though. One family entered into one such agreement to secure the sale of a South London property putting down £25,000 as the ‘holding fee.’ They reserved the right to buy for four months but delays in the process left them with out the home and £25,000 out of pocket ten months down the line.

Lock-out agreements can be useful for buyers with no intention of pulling out but you do run the risk of losing your fee as the sellers are under no obligation to return the fee. The property ombudsman’s code of conduct requires the non-refundable fee to be written into the terms and conditions of the agreement.

Auction as an answer.

One of the benefits of Auction is that it eliminates, gazumping, gazundering and gazanging from the transaction process entirely. In the terms of a traditional auction, as soon as the hammer falls for the winning bid, or a pre- or post-auction offer is accepted, the contracts are exchanged immediately. This secures the sale for both the seller and buyer as both parties are then legally bound to complete the transaction.

In a modern method auction, as soon as the hammer falls for the winning bid, or a pre- or post-auction offer is accepted, the contracts are set to exchange in 28 days. The buyer essentially purchases an exclusivity period to purchase the property for a set price. It works similar to the lock-out agreement but due to the production of the auction pack, which contains everything that is legally necessary to purchase the property, the buyer doesn’t have to go through the arduous process of conveyancing. The 28 day period gives the buyer enough time to arrange their finances before they enter into the contract exchange. This way the modern method opens up the benefits of auctions to buyers looking to purchase their property with a mortgage or another form of financing.