The most common reason for house sales falling through during the past year is gazumping, new research reveals.
Gazumping involves the seller backing out of an agreed sale due to a higher offer from elsewhere, and either taking it or asking for more money from the original buyers.
Price comparison website Compare The Market found that 39 per cent of buyers admitted that they had successfully secured their home this way and outbid another offer that had already been accepted.
Comparethemarket found that 39 per cent of buyers admitted that they had successfully secured their home via the gazumping route
Separately, the research found that among those who tried to buy in the past year but had their purchase fall through, gazumping was to blame for 38 per cent of failed transactions.
Given that the property is so red hot at the moment, it is perhaps unsurprising that homebuyers are willing to pay over the odds. Figures yesterday from Nationwide Building Society showed house prices up 13.4 per cent over the past year.
Indeed, the research found that three-quarters of potential homebuyers would consider gazumping if their dream home was already under offer with another buyer.
The research said that the prospect of being gazumped is adding to stress levels for many homebuyers.
A total of 81 per cent of those waiting for their house purchase to complete expressed concern that another potential buyer might come in and gazump them.
Another reason for transactions falling through is the failure to meet the stamp duty deadline on June 30, which has accounted for 18 per cent of sales falling through, according to the research.
Failing to meet the deadline for the stamp duty holiday leaves some buyers with a larger tax bill that can make the purchase of a house unaffordable.
This week marks the end of the stamp duty holiday, which sees no tax on the first £500,000 of a property purchase price replaced by none on the first £250,000 until the end of September. Stamp duty is due to return in full after that.
In addition, the survey found that 15 per cent had a transaction fall through due to a member of the household being furloughed, leaving them ineligible for a mortgage.
The prospect of being gazumped can add to the levels of stress associated with purchasing a property
During the past year, 38 per cent of homebuyers paid above the asking price of a property to secure the deal, paying £16,000 on average.
Gazumping is currently legal in Britain, as the ‘agreement of purchase’ only becomes legally binding once contracts have been exchanged.
If a buyer is gazumped after their initial offer had already been accepted, they may also lose out on fees already paid on surveys, solicitors and obtaining a mortgage for the property.
This has created concern in the market and the research found that 68 per cent of people who have bought or tried to buy a house in the past year would support a law that made gazumping illegal, or better protections are in place to prevent this happening
Mark Gordon, of Compare The Market, said: ‘The race to meet the first stamp duty deadline on June 30 has led to an increase in demand for homes, meaning many buyers are willing to pay above the odds and even gazump homes which are already under offer.
‘This has left many prospective buyers significantly out of pocket and adds additional stress to the homebuying process, given the average sale takes about three months to formally exchange contracts.
‘Whether you are a first-time buyer or moving home, prospective homebuyers should be as prepared as possible before making an offer to ensure that the process runs smoothly and quickly. It’s important to make sure you shop around online to compare mortgage rates and have all your finances lined up before putting in an offer.’
The research was based on 2,002 respondents who have bought or tried to buy a house in the past year to May 2021 or who are looking to buy.
How to avoid being gazumped
While there are no sure-fire ways to avoid being gazumped, buyers can reduce the chances of it happening by taking some simple precautions.
- Get organised: The sooner an offer is made, the less chance there is of another buyer putting in a higher bid.
- Make sure your finances are in place and that you’ve got a mortgage ‘agreement in principle.’
- Request that the property is taken off the market as part of the offer that is made on the property.
- Consider a ‘lock-out agreement’ or ‘exclusivity agreement.’ This is where the vendor agrees not to seek, or accept, other offers from other buyers for a certain period.
And if you do lose out on a purchase, you may be able to recoup some of the costs…
- Buyers can protect themselves by taking out ‘home buyers protection’ insurance. Policies cover some of the loss of legal, valuation and mortgage administration fees.
North London estate agent Jeremy Leaf said: ‘Gazumping is frequently raised as an issue when buyers are unable to purchase a property. However, we find that in most cases the fault lies with the buyers themselves for failing to exchange contracts within an agreed timescale perhaps or because they were unable to obtain mortgage finance or to arrange a survey in time.
‘Of course, under the present arrangements there is very little to be done in terms of reimbursing those who are genuine victims of the practice. But the advantage of our present system is its flexibility, so that if buyers are unable to meet their obligations, it is relatively easy for alternatives to be found.
‘Other countries do operate different systems whereby offers can be ring fenced for a specific period but that often leads to buyers and sellers playing for time until that period has elapsed or it makes the whole process longer than it needs to be.There are advantages and disadvantages of both systems – neither is perfect.’