Guzumping…. Gazundering…. What are they and how do you avoid it?
You spend months looking for the perfect property in the right location, you make your offer which is accepted and you start mortgage process. It should be as easy at that shouldn’t it? Wrong…… More and more contractors are reporting to us they have been gazumped.
Contractor Mortgage Specialist
Gazumping occurs when a buyer’s offer on a property is accepted, only for the seller to later agree to a higher offer from another party, resulting in the original buyer losing out on the purchase – a situation commonly referred to as being ‘gazumped’.
Guidance has been provided on how contractors can safeguard their finances from the practice of gazumping, following reports that over a third of buyers have been impacted by this phenomenon.
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Recent research conducted by the HomeOwners Alliance reveals that 37% of buyers have experienced the disruption of a home purchase due to gazumping, marking a 6% increase from the previous year.
The occurrence of gazumping is typically driven by the seller’s desire to maximise the selling price of their property, although it can also be prompted by delays from the buyer during the purchase process.
It is important to note that gazumping is legally permissible and can take place at any point before the exchange of contracts, with the seller facing minimal repercussions, aside from potential ethical considerations.
In the event that a seller entertains a higher offer post contract exchange or withdraws from the sale thereafter, the buyer retains the right to pursue legal action for any resulting financial losses and potentially retain the deposit.
Should you fall victim to gazumping, you stand to lose the funds invested in surveys or local searches conducted by your conveyancer. Reimbursement for these expenses is typically only feasible if gazumping occurs post-contract exchange.
On the other hand, ‘gazundering’ refers to the buyer submitting a reduced offer or introducing additional conditions after agreeing on the sale price. This tactic may be strategic on the buyer’s part, especially in time-sensitive transactions or when contracts are exchanged on the sale day.
However, it could also be a reactionary measure due to circumstances within the buyer’s property chain or issues highlighted in a survey.
Instances where you may experience gazumping can vary, with some common reasons being:
The seller’s desire to maximize profit: One prevalent cause of gazumping is the seller’s aim to secure the highest possible price for their property. In the event of being gazumped post contract exchange, there are limited options available. However, if gazumping occurs before this stage, your main recourse may involve submitting a second, higher offer.
Acceptance of a low offer: Buyers often initiate negotiations with an offer below the asking price. If your low offer is accepted, you are more susceptible to gazumping, as another party may present an offer closer to or exceeding the asking price.
Delays in the sales process: Property transactions are often time-sensitive, especially in chain sales where multiple transactions are interdependent. If delays in your part of the chain hinder the process, the seller might opt for an alternative offer from a more expedient buyer. Additionally, if avoidable delays occur, the seller may perceive this as a lack of commitment and consider other offers from what they perceive as more serious buyers.
Paula Higgins, CEO of HomeOwners Alliance, emphasised the inadequacy of the current system in protecting consumers from gazumping, highlighting the prevalence of properties listed as ‘sold subject to contract (sold STC)’ on property websites, which can attract competing offers.
Estate agents are obligated to relay these offers to the seller, further complicating the situation. To address this issue, Higgins recommends that buyers take proactive steps to safeguard their finances, including being well-prepared, acting swiftly, obtaining home buyers protection insurance, and negotiating to secure the property.
The HomeOwners Alliance offers the following suggestions for buyers to shield themselves from the risks of gazumping:
Obtain home buyers protection insurance to mitigate financial losses in case of a failed transaction.
Be prepared by having a mortgage Agreement in Principle, appointing a solicitor, and organising all necessary documentation promptly.
Act swiftly to progress to the contract exchange stage swiftly, where the transaction becomes legally binding.
Request the property to be removed from the market once your offer is accepted to reduce the likelihood of being gazumped.
Consider requesting a ‘lock out’ agreement, which grants the buyer exclusive rights to purchase the property within a specified timeframe.
Whilst these strategies can reduce the likelihood of this occurrence, complete immunity is not guaranteed.
Should a superior offer be presented, it is advisable to assess your financial situation to determine if you are able to raise your offer, should you choose to do so. It is important to note that you may opt not to increase your offer even if financially feasible.
If you decide to counteroffer, ensure that the amount you propose is within your financial means and endeavour to avoid engaging in a bidding war. Another approach is to appeal to the seller’s sensibilities by demonstrating that you are better positioned to make the purchase.
Factors such as being a first-time buyer without a property chain and displaying flexibility regarding the moving date can work in your favor.
Essentially, any actions that showcase you as the ideal buyer for the property should be utilized to strengthen your position.
About Company
MyContractorbroker was formed by our founder Andy McBride. Andy had worked as a management consultant on a contract basis and understood the frustrations working in this way can cause when it comes to mortgage funding. Andy started his career in contractor mortgages in 2008 and in that time has overseen 1000’s of contractor mortgage applications. Our focus today is just the same as it was on day 1, to ensure contractors, freelancers and locums are not penalised for working in an entrepreneurial way.
Our role is simple, to ensure you receive the same rates from high street lenders that a permanent member of staff would and that the application process is a smooth and pain free as possible. We work slightly differently to most brokers by conducting detailed research up front (at no cost) to ensure when you receive a recommendation, you have the peace of mind that a lender understands your particular set of circumstances.
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