What are gazumping and gazundering?

If you’ve ever been in the process of buying or selling a house, there are two terms you might come across that can strike fear in the heart of homeowners – gazumping and gazundering. But just what are these strange terms, and what makes them so feared? Let’s take a look.

What is gazumping?

Gazumping is one of the many pitfalls that can arise between your offer being accepted and the exchange of contracts. Put simply, it’s what happens when a seller accepts your offer but then rejects it before the exchange of contracts in order to accept an offer (usually higher) from another buyer.

But it can also occur if there has been a delay in proceeding with the sale. For example, if you make an offer but there are significant hold-ups (such as a delay with your solicitor or in arranging the mortgage), then a buyer can reject your offer, even after accepting it, and instead choose to go with another buyer who is ready to move more quickly.

For many people who have set their hearts on a property it can be a crushing disappointment, forcing them to either start their property search all over again or increase their own bid to compete with the new buyer.

Is gazumping illegal?

No. While there has been some talk of legislating against the practice of gazumping, it is not illegal, meaning you have no comeback against the seller for any losses you may have incurred – such as survey costs, legal expenses etc – while you were waiting for contracts to be signed and exchanged.

If you are in the process of buying a home (or other property) then it pays to remember that any sale is ‘subject to contract’. Essentially, this means the sale is only agreed ‘in principle’, and that both parties are not locked in until contracts have been signed and exchanged. However, once that’s happened, the sale is legally binding and gazumping is no longer possible.

Do estate agents allow gazumping?

Yes. In fact they’re obliged to notify the seller of any offer that comes through, even if it’s after the original one has been accepted.

This is rarely the fault of the estate agent, though some have been accused of fabricating higher offers in order to inflate the sale price and boost their own commission. This is highly unethical and thankfully rare, but always ask to see proof, in writing, of any later offer your estate agent informs you of, and make sure to read our tips on finding the best estate agent to avoid any unscrupulous ones.

How to avoid being gazumped

It can be difficult to avoid being gazumped altogether – you’re not in control of other house-hunters and you can’t stop the seller from accepting a higher offer – but there are things you can do to reduce the chances, or at least to mitigate the impact it could have.

1. Be prepared. One of the best things you can do is make sure you’re in a great position to get the process moving, and that means getting things prepared in advance. Look for ways to increase your chances of getting a mortgage ahead of time, and aim to get a mortgage in principle before you make your offer. Make sure to have all of the necessary documents ready to go and ideally have a solicitor already lined up as well. The longer you keep a seller waiting, the higher the risk that they will get fed up and go elsewhere, so it pays to be organised.
2. Ask the seller to remove the property from the market. If the property is no longer being advertised it reduces the possibility of other buyers seeing it and making a higher offer. This could be a condition of your offer, but bear in mind that sellers may be more likely to accept if you’re offering the asking price or close to it; if it’s under asking, there’s a higher likelihood the seller will want to see if a better offer comes along.
3. See if they’ll consider a lock-out agreement. This is a legal agreement between the seller and buyer that states the seller will not sell or market the property to another person. Should the seller break this agreement, the buyer can recover ‘wasted’ costs, but it does not allow you to force the homeowner to sell the property only to you.
4. Act fast. If you’re able to move quickly there’ll be less time for other offers to come in, so try to do things like getting the survey booked in as quickly as possible. Make sure to keep in regular contact with your conveyancer/solicitor to ensure that everything is moving as quickly as possible, and try to keep your sellers updated as well.
5. Get insurance. You can’t prevent getting gazumped completely, but there’s a type of insurance that can protect you against any financial loss that could occur as a result of it. Known as homebuyers’ protection insurance, this will allow you to claim back some of the costs that you’ve already incurred (such as survey fees, conveyancing costs and mortgage arrangement fees) should the sale fall through. Find out more about some of the fees you can expect in our guide on the costs of buying a home.
6. Use a broker. Being able to arrange a mortgage quickly and keep the process moving can help minimise the chances of gazumping as there’ll be less time for another offer to come in. A broker can be a great help with this – they can make the process of finding and applying for the right mortgage quicker and easier, and can help push things forward. Find out more about why you should use a broker, and when you’re ready to get started, speak to our preferred broker Mortgage Advice Bureau.

What to do if you’ve been gazumped

First things first – don’t panic! It can be incredibly stressful to hear that the sale might fall through, particularly if you’re a long way into the process and already heavily out of pocket. But don’t immediately jump to making a counter offer without thoroughly thinking it through. Here are a few options:

• Speak to the seller to see if they’ll reconsider. Try pointing out what makes you a good buyer – perhaps it’s that you have no chain, can move quickly or that your mortgage in principle sets you apart. Or you could appeal to their emotional side, saying how much you love the property and how it would be perfect for your growing family.
• See if you could increase your own offer. Once you’ve got proof of the higher offer from your estate agent, you may need to crunch the numbers and see if you can raise your own offer to gazump the gazumper. Only do this if you’re confident you can afford it – never overstretch yourself financially.
• Accept that you’ll need to start the process again. Unfortunately there may be nothing you can do, and you may simply have to accept that you’ll need to start looking for a new property. Claim on your homebuyers’ protection insurance if you have it so you can recoup some of the sunk costs.

Should you accept a gazumping offer?

If you’re a seller and you’re approached with a higher offer when your property is already sold subject to contract, should you accept it? There’s no easy to answer to this as it’s entirely your own decision. Ethically you may want to decline it as it wouldn’t be fair on the original buyer, but realistically this may come down to how much higher the offer is and how much of a difference it would make to your finances.

Just bear in mind that accepting the higher offer could delay the process, especially if the original buyer was close to exchange. There’s always the chance that the higher offer could fall through as well, which means you’d be left in an even worse position of needing to find another buyer.

What is gazundering?

This is where the buyer revokes their agreed-upon offer and makes a lower bid, typically just before contracts are signed. As with gazumping, gazundering is considered an unscrupulous act, although again, it is not illegal. Typically, this is a strategy that is used by buyers to force the seller to accept their new, lower offer to avoid the sale falling through entirely.

Yet while some buyers may just want to try their luck, there can be legitimate reasons for offering a lower price. These can include:

• If the survey raised issues with the property that causes the buyer to reduce their offer
• If they face unexpectedly higher costs or issues further down the chain
• If their full mortgage application reduces the amount they can borrow
• If property prices have been falling in the area and the house is now worth less than when the offer was made (this could particularly be the case if the process is taking a long time).

If you are the victim of gazundering then you must decide whether you are prepared to walk away from the sale or to accept the lower offer. However, remember that if you accept the lower offer, there’s nothing stopping the buyer from attempting this ploy again with an even lower bid – again under the threat of pulling out entirely. In this case, you could find yourself in a reverse bidding war.

And, if you’re the buyer, think carefully about gazundering unless you have a very good reason for doing it. It can be a risky tactic as it could jeopardise the entire property chain and means the sale could fall through, ultimately leaving you – as well as the seller – in a much worse position.

How to avoid gazundering

As a seller there are things you can do to avoid gazundering, many of them similar to avoiding gazumping. They include:

• Set a realistic price. The more realistic your price in the first place, the less chance there is for buyers to feel short changed.
• Choose your buyer carefully. If you’ve got several buyers vying for your property, it could pay to be selective. Opting for one who’s chain-free or with a very small chain could be preferable, as it’s less likely they’ll face unexpected costs or issues elsewhere in the chain.
• Move quickly. The quicker things progress, the less chance there is for the property market to change and for buyers to consider lowering their offer. They’ll also be spending more on the buying process, so would be less inclined to risk the sale falling through. Keep in regular contact with your solicitor to ensure things are progressing, and ideally set a date for exchange as quickly as possible.
• Be transparent with your buyer. It’s important to maintain good communication with your buyer and remain transparent throughout, particularly if any issues come to light with the property. Don’t try to hide any problems with your home or the surrounding area; if they find out through a mortgage survey, they could reduce their offer or pull out altogether.
• Consider insurance. You could consider taking out homesellers protection insurance to help recoup some of your costs. This is similar to homebuyers’ protection insurance in that you’ll be able to claim back your legal expenses to reduce the financial loss of a sale falling through.

How to respond to gazundering

Gazundering can be incredibly stressful for the seller, particularly if you’re in a chain and risk losing the new property should you fail to accept the new offer. Here are a few ways you could respond:

• Talk to the buyer. Ask why they put in the lower offer, and see if there’s anything you can do to negotiate. If it’s because of problems that arose from the survey there may not be much you can do, but if it’s simply because they want to try their luck, point out that they’ll also be in a worse position if the chain collapses, highlighting the costs they’ve already spent.
• Accept the lower offer. If the lower offer is realistic (such as because of structural problems or rapidly falling property prices), you may want to accept the lower offer if you’re financially able to do so. You may even want to accept it simply to get the sale through, but always make sure you can afford it and it won’t jeopardise your ability to buy your new home.
• Reject it. You’re under no obligation to accept the lower offer, and if you don’t agree you can reject it. There’s a chance your buyer will continue with their original offer, but if they don’t, be prepared for the fact that the sale could fall through and you’d need to put the property back on the market.

It’s important to consider your individual situation when deciding how to respond to gazundering, as well as the wider property market. If it’s remained stagnant or prices have started to fall since the original offer was accepted, relisting your property could result in a lower price anyway, in which case it could be worth considering the gazundered price just to get the sale over the line. Make sure to speak to your broker and/or solicitor for advice.