How do you stop Gazumping?

22/10/2017
The Government have today (Oct 2017) identified gazumping as a key issue affecting the housing market and are looking for ways to stop it. The question is how do you change something that runs through the heart of the conveyancing process.

Gazumping is the term used where a seller of a property accepts a higher offer from another buyer and cancels the offer they had from the original buyer. The reason why gazumping can take place is because in England and Wales, neither buyer nor seller are legally bound to complete the sale of the property until they exchange contracts. This leaves time for the buyer to value the property, check the legal title and inspect for defects, however it also leaves time for the seller to accept higher offers from other buyers.

How long does it take to get to exchange?

The average time for a freehold to get to exchange is 8 weeks, and for a leasehold it is 12 weeks.The process can be completed faster - read to see how here

The Government is looking at ways to stop sellers gazumping buyers during the transaction through changes to the legal process, however should they also look into the selling practices of the estate agent and seller as well?

We'll review this in detail and at the end of our article we show you how you can protect yourself against some of the costs of being gazumped. One of the solutions we offer our clients is a no sale no fee on our solicitors' legal fees and you can get an online quote here.

Fixed Fee, No Sale No Fee with a 5 out of 5 rating

 

What are the costs of gazumping?

These are the costs buyers may have paid by the time they are gazumped:

  • Solicitor’s legal fee ranging from £0 to £750 INC VAT
  • Property searches ranging from £265 to £450
  • Mortgage application fee ranging from £0 to £500 INC VAT
  • Mortgage survey ranging from £0 to £600 INC VAT
  • Building survey ranging from £480 to £1,000 INC VAT

Total loss for buyer after being gazumped - from £745 to £3,300*

* Figures only estimated and losses could be greater.

What is the Government going to do?

The suggestion is to implement a Lock-in Agreement to tie in the seller and the buyer into the offer, however how far can this agreement go? For the seller it'll most likely stop them from accepting any offers until their buyer has completed their due diligence and should stop them from marketing their property to other buyers.

The agreement needs to also address issues found in the property because as much as the buyer wants to be protected from being gazumped, they are equally going to want to be protected from being bound into an agreement until they have completed their:

  • Legal checks on the title;
  • Mortgage valuation;
  • Property searches; and
  • Building survey.

Any one of the above checks could flag a reason why the buyer should not proceed with the purchase from the seller. So does the lock-in agreement give the buyer the ability to pull out without incurring a heavy financial penalty if there is an undisclosed issue? How will the Lock-in Agreement decipher legitimate reasons for the buyer to break the contract and ones that are simply a change of heart of the buyer?

This new process may need the seller to provide a number of material documents to the buyer at the time of signing the Lock-in Agreement. If this is the case, then is the Government moving back to the previously exiled 'Home Information Pack'?

What is a Home Information Pack?

The Home Information Pack (HIP) was a bundle of documents provided by the seller to the buyer at the point of making an offer. Within the pack it included:

  • Title Plan
  • Energy Performance Certificate (EPC)
  • Local Authority Search
  • Protocol forms

If the Government's focus is to go back to the seller providing key information about their property to the buyer on offer, it'll be a serious u-turn as they removed the need to provide a HIP when they came into power in 2011.

Will a Lock-in Agreement delay the conveyancing process?

It will and at a time when both the seller and the buyer want to get things underway. The questions are, under what circumstances can either the seller or the buyer pull out and at what financial cost? In order for a Lock-in Agreement to work, there must be financial penalties for the breach of the agreement.

Most buyers and sellers will want legal advice before signing the Lock-in Agreement as they'll need to fully understand what they are being bound to, especially if they are financially liable for breaking it.

How do you protect yourself in the meantime?

Whilst the Government debates on how to ban gazumping and the terms of the Lock-in Agreement here are just a few things a buyer can do to protect themselves:

    1
    No Sale No Fee Conveyancing Fees
Much like our solicitors, there are many firms who offer some form of a no sale no fee to protect their clients from being gazumped. There are, however, some solicitors who do not offer this protection so make sure to check with your solicitor before instructing.

    2
    Conveyancing Costs insurance
There are a number of insurance providers who offer insurance to protect against losses incurred by the buyer during the conveyancing process. The cost for this insurance varies from £70 to £200. The terms and conditions of these policies should be reviewed prior to taking them out as there are exclusions in some of the policies.

One exclusion to look out for is that you cannot insure for costs already contractually incurred. For example, if you have already instructed a solicitor or a surveyor before you take out the insurance then you are not able to reclaim this cost should the need arise to claim on your insurance.


Related News Articles

 
Gazumping - 4 ways to protect yourself against being gazumped
10/01/2018
No Sale No Fee Conveyancing
04/04/2018
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