Gazumping which was the scourge of the Property buying market during the boom times is alive and kicking - in both the property buying market and the property rental market.
History of Gazumping
The term ‘Gazumping’ (originating from the Yiddish word 'gezumph' meaning over-charging) began to rear its head in the boom of the 1980’s and resurfaced in the boom and bust times of the early to mid -2000s.
For those who are not in ‘the know’, gazumping is where a seller accepts an offer on a property and when the transaction is progressing accepts a further higher offer from another buyer. By accepting the higher offer and pulling out from the original deal they leave the first buyer high and dry and out of pocket by the hundreds of pounds spent on mortgage application fees, surveys and legal fees. Gazumping (which was outlawed in Scotland) caused an upward distortion in the property market and caused a lot of misery for buyers in what was essentially a buyer’s market. Very little could be done to counter act the effects of gazumping; under the provisions of the Estate Agency Act, Estate Agents are obligated to pass on every offer to the seller whether or not the property is still on the market an obligation that acted to perpetuate the problem.
The shortage of property in London coupled with the increase in demand has meant that the property prices in London are rising by as much as 1.5% to 2.5% a month With house viewing open days where 20 or more potential buyers attend, this is definitely a buyers’ market.
A new phenomenon of ‘Ghost Gazumping’ has raised its ugly head and is becoming more and more common not just in London, but also ‘rippling’ out to the rest of the country. Unlike the usual form of gazumping seen in the 1980s and early 2000s this type of gazumping does not involve a rival bidder but is simply the seller is reacting to a rising market and an oversupply of ready buyers- hence the term ‘Ghost Gazumping’.
The seller accepts an offer and takes the property off the market whilst negotiations with the buyer ensue and during that time, other similar properties in the same street or town are coming on to the market at prices of £20,000.00+ more than the seller is selling their property for; the seller then ups their asking price because they know that if the buyer pulls out there is another potential buyer who will step in at the higher price.
Ghost Gazumping causes huge problems for the buyer who has probably paid their mortgage application fee, valuation fee, fees for conveyancing searches and may even have had a survey carried out - amounting to a total commitment of £1,000.00- £2,000.00. Unless the buyer has the ready cash, they are faced with losing the property and considerably out of pocket, having to start again . The fact that contracts had not yet been exchanged, and that there was not a binding contract in place, means that there is no recourse for the buyer – they simply have to ‘take it on the chin’. What is the answer? Whilst the immediate answer has to be to speed up the conveyancing process the long term answer has to be to increase the supply of property.