Gazumping
Encyclopedia
Gazumping is a term used in the UK and Australia
when a seller (especially of property) accepts a verbal offer of the asking price from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price at the last minute, after previously verbally agreeing to a lower one. In either case, the original buyer is left in the lurch, and either has to offer a higher price or lose the purchase. There is a common misconception that you are 'gazumped' if you agree to buy a property for less than the asking price and then another buyer agrees to pay more than your knocked down offer.
of the late 1980s and early 1990s, gazumping became commonplace in England and Wales
because a buyer's offer is not legally binding even after acceptance of the offer by the vendor. This is because, by s.2 of the Law of Property (Miscellaneous Provisions) Act 1989
and in order to prevent dishonesty
, a contract for the sale of land must be in writing, a requirement of English law
that dates back to the Statute of Frauds
of 1677. This requirement was originally intended to promote good faith and certainty in land transactions.
When the owner accepts the offer on a property, the buyer will usually not yet have commissioned a building survey nor will the buyer have yet had the opportunity to perform recommended legal checks. The offer to purchase is made "subject to contract" and thus, until written contracts are exchanged either party can pull out at any time. It can take as long as 10–12 weeks for formalities to be completed, and if the seller is tempted by a higher offer during this period it leaves the buyer disappointed and out-of-pocket.
When property prices are in decline the practice of gazumping becomes rare. The term gazundering
has been coined for the opposite practice whereby the buyer waits until everybody is poised to exchange contracts before lowering the offer on the property, threatening the collapse of a whole chain of house sales waiting for the deal to go through. Gazanging
describes a similar situation, where a seller pulls out of a sale entirely, expecting to get a better asking price once the market improves.
and practice makes the problem of gazumping a rarity in Scotland. In the Scottish system of conveyancing
buyers either obtain a survey prior to making a bid to the seller's solicitor or make an offer "Subject to Survey". Sellers normally set a closing date for written offers, then provide written acceptance of the chosen bid. The agreement becomes binding when a seller's solicitor delivers a signed written acceptance of a buyer's offer. Should the seller attempt to accept a higher bid after the contracts have been legally finalised by a written offer and acceptance, their solicitor will refuse to act for them as this, according to the Law Society of Scotland
code of practice, would be professional misconduct. As in England, all contracts for the sale of land must be evidenced in writing signed by or on behalf of each party. In Scotland the parties' solicitors sign on their behalf, unlike in England, where buyer and seller both sign a contract which has been produced in duplicate form, with the duplicates then being exchanged to effect a binding contract. It is often wrongly claimed that gazumping is a rarity in Scotland because it is said that an oral agreement on a property deal is legally binding; while the law on contract differs from the law in England, the rarity is due to the different system of conveyancing.
In Scotland however, an Estate Agent, acting on behalf of the seller, can initiate instances of another form of gazumping. Once a closing date for written offers has been reached and an Estate Agent has given a verbal acceptance of the chosen bid, the Estate Agent can then attempt to induce a bidding war between the successful buyer and a rival, who may be fictional, in an attempt to increase the offer made by each party. In such circumstance there is little recourse for a successful buyer who, despite having been informed verbally that their offer has been accepted, is then informed verbally that their offer has been rejected in favour of a higher bid. Such situations only occur at an early stage of the conveyancing process, prior to any written acceptance of an offer being given by the seller's solicitor. Often they result from the legal requirement on the part of Estate Agents to advise a seller of any higher offer received prior to written confirmation of a verbally accepted offer being given, including those received after a closing date.
In Scotland, gazundering is possible where the buyer has insufficient assets to be worth suing, but is not common.
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
when a seller (especially of property) accepts a verbal offer of the asking price from one potential buyer, but then accepts a higher offer from someone else. It can also refer to the seller raising the asking price at the last minute, after previously verbally agreeing to a lower one. In either case, the original buyer is left in the lurch, and either has to offer a higher price or lose the purchase. There is a common misconception that you are 'gazumped' if you agree to buy a property for less than the asking price and then another buyer agrees to pay more than your knocked down offer.
England and Wales
With buoyant property prices in the British residential property marketBritish residential property market
The affordability of housing in the United Kingdom deteriorated significantly from the late 1990s onwards, with house prices rising faster than earnings and the average age of first-time homebuyers increasing...
of the late 1980s and early 1990s, gazumping became commonplace in England and Wales
England and Wales
England and Wales is a jurisdiction within the United Kingdom. It consists of England and Wales, two of the four countries of the United Kingdom...
because a buyer's offer is not legally binding even after acceptance of the offer by the vendor. This is because, by s.2 of the Law of Property (Miscellaneous Provisions) Act 1989
Law of Property (Miscellaneous Provisions) Act 1989
The Law of Property Act 1989 is a United Kingdom Act of Parliament, which lays down a number of important provisions for English property law....
and in order to prevent dishonesty
Dishonesty
Dishonesty is a word which, in common usage, may be defined as the act or to act without honesty. It is used to describe a lack of probity, cheating, lying or being deliberately deceptive or a lack in integrity, knavishness, perfidiosity, corruption or treacherousness...
, a contract for the sale of land must be in writing, a requirement of English law
English law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
that dates back to the Statute of Frauds
Statute of frauds
The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract....
of 1677. This requirement was originally intended to promote good faith and certainty in land transactions.
When the owner accepts the offer on a property, the buyer will usually not yet have commissioned a building survey nor will the buyer have yet had the opportunity to perform recommended legal checks. The offer to purchase is made "subject to contract" and thus, until written contracts are exchanged either party can pull out at any time. It can take as long as 10–12 weeks for formalities to be completed, and if the seller is tempted by a higher offer during this period it leaves the buyer disappointed and out-of-pocket.
When property prices are in decline the practice of gazumping becomes rare. The term gazundering
Gazundering
Gazundering is the practice of demanding a reduction in price to secure the sale of a property. This is usually done during contract negotiation...
has been coined for the opposite practice whereby the buyer waits until everybody is poised to exchange contracts before lowering the offer on the property, threatening the collapse of a whole chain of house sales waiting for the deal to go through. Gazanging
Gazanging
Gazanging is a term used in the UK to describe when a vendor pulls out of a property transaction and opts to stay put, having previously accepted an offer....
describes a similar situation, where a seller pulls out of a sale entirely, expecting to get a better asking price once the market improves.
Scotland
Scots lawScots law
Scots law is the legal system of Scotland. It is considered a hybrid or mixed legal system as it traces its roots to a number of different historical sources. With English law and Northern Irish law it forms the legal system of the United Kingdom; it shares with the two other systems some...
and practice makes the problem of gazumping a rarity in Scotland. In the Scottish system of conveyancing
Conveyancing
In law, conveyancing is the transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage or a lien....
buyers either obtain a survey prior to making a bid to the seller's solicitor or make an offer "Subject to Survey". Sellers normally set a closing date for written offers, then provide written acceptance of the chosen bid. The agreement becomes binding when a seller's solicitor delivers a signed written acceptance of a buyer's offer. Should the seller attempt to accept a higher bid after the contracts have been legally finalised by a written offer and acceptance, their solicitor will refuse to act for them as this, according to the Law Society of Scotland
Law Society of Scotland
The Law Society of Scotland is the professional governing body for Scottish solicitors.It promotes excellence among solicitors through representation, support and regulation of its members. It also promotes the interests of the public in relation to the profession...
code of practice, would be professional misconduct. As in England, all contracts for the sale of land must be evidenced in writing signed by or on behalf of each party. In Scotland the parties' solicitors sign on their behalf, unlike in England, where buyer and seller both sign a contract which has been produced in duplicate form, with the duplicates then being exchanged to effect a binding contract. It is often wrongly claimed that gazumping is a rarity in Scotland because it is said that an oral agreement on a property deal is legally binding; while the law on contract differs from the law in England, the rarity is due to the different system of conveyancing.
In Scotland however, an Estate Agent, acting on behalf of the seller, can initiate instances of another form of gazumping. Once a closing date for written offers has been reached and an Estate Agent has given a verbal acceptance of the chosen bid, the Estate Agent can then attempt to induce a bidding war between the successful buyer and a rival, who may be fictional, in an attempt to increase the offer made by each party. In such circumstance there is little recourse for a successful buyer who, despite having been informed verbally that their offer has been accepted, is then informed verbally that their offer has been rejected in favour of a higher bid. Such situations only occur at an early stage of the conveyancing process, prior to any written acceptance of an offer being given by the seller's solicitor. Often they result from the legal requirement on the part of Estate Agents to advise a seller of any higher offer received prior to written confirmation of a verbally accepted offer being given, including those received after a closing date.
In Scotland, gazundering is possible where the buyer has insufficient assets to be worth suing, but is not common.