The world of residential mortgages and house purchases is awash with jargon and technical terms, but there are two that you might come across – especially when it comes to buying or selling a house. These are gazumping and gazundering – but what are these strange terms and why exactly do they send a cold chill of fear down the spine of those who know what they mean?
Congratulations! You’ve found your perfect home and made an offer that has been accepted by the seller. Time to start shopping for sofas and fridge freezers then? Alas no. There are many pitfalls between your offer being accepted and the exchange of contracts – and gazumping is one of them.
Gazumping is the popular term for when a seller accepts your offer but then rejects it before the exchange of contracts in order to accept an offer (typically a higher offer) from another buyer.
Gazumping 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 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 to increase their own bid to compete with the new buyer.
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 valuation fees, 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.
This is the where a seller has made an offer that has been accepted by the seller, but then revokes the first offer to make a lower bid – usually 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 while under the threat that if they don’t the buyer will pull out of the deal entirely.
If you are the victim of gazundering then you must decide as to whether you are prepared to walk away from the sale or to accept the lower offer. However, it would pay you to remember that if you accept the lower offer, there is 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.
Gazumping is more likely in highly sought after areas while gazundering is more prevalent where house prices have stalled or actively falling. Make sure you know what the housing market is like in your area so you can be prepared for any underhand tactics.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.