Gazumping occurs when a seller accepts a higher offer from another prospective buyer at the last minute. Gazundering is gazumping in reverse. Here the buyer threatens to pull out of the transaction just before contracts are exchanged unless the price of the property is reduced. The increase in Gazumping is due to a buoyant property market coupled with the average wait of 10 - 12 weeks between the offer to purchase and the exchange of contracts. Both these practices slow down the conveyancing process: in breaking one link a whole chain of transactions fail.
As insidious as these two practices are, they remain perfectly legal and above board. Since archaic legal rules allow both the buyer and seller to withdraw from the agreement at any time before the exchange of contracts. Some do, with impunity, and leave the other exposed to substantial mortgage costs, legal fees and surveyors' bills.
The British government, under its Homes bill, hopes to curtail these practices by speeding up the conveyancing process with its proposed seller's packs. Under the proposed Homes bill, buyers will be encouraged to make firm offers and do preliminary work as proof of their intention to buy. The two practices are likely to continue as only these proposals will see the light of day and the speedier conveyancing process will reduce the window of opportunity.
One solution proposed is the "Scottish system" where properties are tendered for before the sale is agreed. This system has been rejected because of the heavy increase in costs (such as search and surveyors' fees) which have to be paid at the outset and which are lost if the bid fails.
Another proposal is that estate agents organise a pre-contract deposit agreement. Here each party places a small percentage of the house price with a solicitor or a bank. If either party then pulls out in a way contrary to what was agreed, their deposit is forfeited. One criticism is that estate agents are not regulated and many are unqualified.
A solution similar to this is for the parties to undertake to pay the other party's reasonable costs if they withdraw unilaterally from an agreement. Problems here include:
- What is a "reasonable cost"?
- What is a legitimate reason for withdrawal?
- A list will have to be drawn up and could this lead to arbitration?
- Costs will be increased.
Criticisms of the lockout include the following:
- The lockout may give a false sense of security as either party can still withdraw with impunity at the end of the agreed period;
- The agreement doesn't stop the buyer from looking elsewhere during the agreed period; and
- A lockout agreement is one sided since the seller could always delay exchange until after the agreed period in order to entertain a subsequent higher bid.