Should Gazumping be made illegal?

The term ‘gazumping’ describes a situation where the seller of a property verbally agrees to an offer price from a potential buyer, but then either changes the price at the last minute or agrees to sell to a different purchaser for a higher price.

This practice tends to occur in a market when house prices are rising and there are more buyers around than sellers. It can lead to headache and heartache for the buyer who has been led to believe that the property was theirs and is generally viewed as a callous move on behalf of the seller to get more money for the property. But emotions aside, is there any reason why a seller shouldn't want to get the best price for a property and is there any weight behind making gazumping illegal?

Until contracts have been exchanged, a sale agreement is not legally binding. Once an offer has been accepted, either the buyer or the seller can pull out at any time until the exchange of contracts, without incurring any additional costs. This is very different to the system in Scotland, where gazumping has effectively been eradicated. In Scotland a seller must provide written acceptance of a successful bid. This is legally binding and is further supported by the Scottish solicitors' code of practice, which forbids working for a client who is seeking other offers after a written acceptance has been made.

So should we implement the Scottish system here? If gazumping were made illegal, it would certainly make conveyancing a less anxious time for everyone involved and would provide the buyer with more certainty that the money they had already invested in purchasing the property (mostly solicitor and surveyor’s fees) was not going to be wasted. It would also save time and money for all professionals involved in the conveyancing process.

However, even if gazumping was to become illegal in England, it wouldn't necessarily make the process of buying a property any easier for the purchaser. Other legal quasi contracts would be needed to bind the seller to the buyer, which would not necessarily act as full contracts and could result in further disputes or vagueness regarding what each of the parties actually intended. Going down the route of a more rigorous lock-in/lock-out agreement would undoubtedly increase the cost of conveyancing for both parties and can lead to delays in the purchase as both sets of lawyers spend time negotiating the lock-in/out contract before they can move onto the actual main sales contract. Furthermore, a buyer could still lose their deposit under a lock-in/out agreement, whereas this would not be possible under the current system, unless they failed to complete post-exchange.

Rather than trying to make the practice of gazumping illegal, more attention should be given to the roles of the professionals involved in the conveyancing process. Estate agents should act fairly and not continue to market a property after a verbal offer had been accepted and draft contracts have been issued to solicitors. A seller’s solicitor will obviously act in the best interest of their client and not the buyer, but they could advise their client on the potential consequences of their actions, including financial repercussions and other drawbacks of gazumping. The seller also needs guidance from the professionals that they employ, and the lawyer and/or estate agent should explain that a good buyer is not just the one who can bid the highest price; other considerations, such as having all of their finances in order, not being part of a chain (or in a chain but is ready to exchange on the related purchase) and an ability to perform within a convenient time-frame are all important factors in identifying a serious buyer.

In reality it would be difficult to outlaw gazumping in a truly effective and efficient way. However, the legal profession and estate agents can help to prevent the practice of it. By making the seller responsible for covering the other person’s costs in the event that gazumping takes place, or by signing an exclusivity agreement on a property, both the buyer and the seller can have the peace of mind that they would have some recourse if either party pulled out prior to exchange of contracts.

Top Tips to prevent Gazumping:

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

1. Try to speed up the sale – the faster it happens, the less time there is for your seller to change their minds.
2. If possible, choose a seller who has an agent that has a policy on gazumping. Some agents insist that the seller signs an agreement to turn down any offers after one has been accepted.
3. Keep in touch with the seller’s agent- make sure they inform the seller when you have completed the survey and received a formal mortgage offer. This way they can be sure that the sale is progressing and are less likely to be tempted to consider any other offers.
4. Suggest a pre-contract deposit agreement, which involves both the purchaser and the seller giving a third party (usually the estate agent or their respective solicitors) a small percentage of the purchase price, which is given in compensation to the other side if the buyer or seller pulls out. This is not a water-tight agreement as either party can pull out if they are willing to lose the deposit, but it definitely reduces the risk.
5. Draw up an exclusivity agreement with the seller once your offer has been accepted. This would require the estate agent to take the property off the market, but to make it legally binding involves using a solicitor which obviously adds to the cost.
6. Take out insurance cover to protect yourself in the event that you fail to buy the property. This is another additional expense, but it would help with the financial (if not the emotional) cost of a failed purchase.
7. Drive past the property once your offer has been accepted and check that the board outside is showing ‘Sold’ or ‘Under Offer’ on it. Contact the agent if it does not and ensure that they rectify it.

8. About the author: Natalie Gefen specialises in residential property law at The Law Department