The return of gazumping
The practice of gazumping is where a vendor accepts an offer from one person, only to later reject it in favour of a higher offer from another buyer. Whilst unfair, gazumping is not illegal under English law, as a buyers’ offer is not legally binding until written contracts are exchanged with the vendor.
Now, a House of Commons Library briefing paper has been publish which provides information on the English and Welsh conveyancing systems, specifically looking at the comparison with Scotland.
In Scotland, properties are either marketed according to the ‘offers over’ system or at ‘fixed price’. As the name suggests, the ‘offers over’ system is where a property is marketed at offers over a specified price. Potential bidders are asked to note interest via their solicitors before a closing date is set. Bidders then have until a specified time to submit a blind bid for the property through their solicitor. Assuming there is at least one bidder, the property is withdrawn from the market on the closing date. Now, whilst this is not a legal requirement, it is a very strong convention adhered to by the residential conveyancing firms in Scotland.
With the fixed price system, the property is marketed at a set price and the first person to offer that price becomes the successful party with whom contract negotiations will begin. Again, as a matter of good practice amongst solicitors’ firms, the property is typically withdrawn from the market on the day an offer is received for the property at the price stated in the marketing material.
New research from Countrywide estate agents recently reported that gazumping is currently at a six-year high in Britain, rising across the nation from 2.4 percent to 3.6 per cent between 2011 and 2017. In the east of England, 5.7 per cent of offers by a seller in 2017 have subsequently been rejected in favour of a higher bid from a different buyer, 30 or more days later. In the East Midlands, the figure has doubled since 2011 to four per cent, with rates almost quadrupling in the northeast of England to 3.9 per cent. Rates in the northwest have more than doubled and the West Midlands and Yorkshire have both recorded a six-year high in the practice.
In the latest survey by online agent eMoove, 36 per cent of respondents reported being gazumped on a recent purchase, compared to just 13 per cent in 2015. Buyers in London were found to be the most likely to be gazumped, with 35 per cent of them stating they had been pipped at the post on a property purchase. Rising house prices and a lack of supply in the capital could be an influential factor in the increasing number of buyers in London being gazumped.
The most recent attempt to make changes to the home-buying process was initiated by the incoming Labour government of 1997, which resulted in the introduction of Home Information Packs (HIPs). However the Conservative Government announced plans back in March 2016 to review the process of gazumping, with a view to making conveyancing better value for money and more consumer friendly.
In November 2016 the Conveyancing Association published a white paper, Modernising the Home Moving Process, considering the UK’s home moving process compared with that of other countries, including the USA, Australia and Denmark. The paper identified the main issues with the English and Welsh home-buying process as a lack of transparency, a lack of certainty, and delays to the point of constraint in the process.
Sam Gibson, Head of Strutt & Parker Morpeth commented:
“There is a shortage of supply of nice houses and therefore pent up demand. When you have something very special like a house on the beach, gazumping can happen. There have been occasions where people – in a moment of despondency – have accepted an offer thinking it was the best they were going to get, and then someone comes along and makes them a better offer. If it’s an extra of £20,000 it can be very difficult to resist.”
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Article from – naea Propertymark