Say you are having some friends over, and just before your guests are due to arrive you realise that you don’t have any wine. In a breathless panic you sprint to your local newsagent and burst through the door, gasping for air and waving a crumpled banknote clasped between your sweaty fingers.
You’re in luck, because there just so happens to be only two bottles of vino left in the whole store.
Awash in relief, you hand over your money and are just about to make a triumphant exit when the shopkeeper announces that you are going to have to return the wine.
Why? Well, it turns out that a second customer, who came in just behind you, also had their eyes on the two bottles of wine and has retroactively offered the shopkeeper an offer that is higher than the original labelled price. The shopkeeper has accepted the later offer and considers your earlier transaction null and void, meaning that you have to return the wine and slink off in shame back to your sober houseguests.
Is this fair? What if the bottles of wine were actually a house on the market?
Unfortunately, the potential return of ‘gazumping’ means that this is a situation that many potential house buyers could find themselves in. How is this possible? What is Gazumping?
Although the incident in the wine shop outlined above is oversimplified, the essential essence of gazumping rings true through it.
Gazumping is a term that applies to a particular situation in which the seller of a property agrees to an offer at the asking price, only to later accept a higher offer and thereby knock the original buyer unceremoniously out of the running.
This is certainly a buyer’s worst nightmare, to have a new deal ripped off the table in a brutally backhanded fashion. But gazumping also indicates something about the overall state of the property market itself. For gazumping to even be an option on a widespread scale, there needs to be an imbalance between the supply of houses being sold and the amount of people looking to purchase one.
Gazumping is essentially a sign that sellers are beginning to flex their muscles, in a market place where the asset they have to offer is in high demand. We conducted a nationwide survey earlier this year, which found that 7% of the property transactions that fell through in the past 12 months were the result of the original buyer being gazumped. In certain cases, we even observed some sellers accepting more than two offers in order to try and push each individual offer higher.
This kind of behaviour is permitted by a quirk of property contract law in the UK. Unlike in Scotland where a seller must accept an offer through a legally binding written statement, in England and Wales a deal is not formalised until contracts are exchanged. This means that either party can pull out of the deal at any time before contracts are produced. This quirk means that a seller can orally accept as many offers as they like.
Why is Gazumping a Bad Thing?
Apart from the searing kind of emotional hurt and sudden sense of insecurity and homelessness that could potentially be inflicted upon the person or family that gets gazumped, the practice can also have a number of negative consequences for both the seller and the buyers.
The potential buyers obviously come off badly from the act of gazumping. The person who gets gazumped may have taken the oral agreement to be binding and set the rest of the property purchasing process in motion, like paying for a survey to take place, local authority searches or mortgage application fees. Getting gazumped can end all of this in a really expensive way. They are going to have to go back to the start of their property search, and this can have long knock on effects on their life. They are also likely to face a diminished choice of potential properties.
The buyer who gazumps the original buyer’s offer also comes off worse from the act as well. Principally they come off worse because they are likely to have paid a sum that was substantially higher than the original asking price, so they may not be getting their money’s worth. In the age of the internet, the seller and the agency they are dealing with are also not going to be totally immune from the negative repercussions of being involved in gazumping. While the agent may receive a little more money for being involved in the practice, this is likely to be counterbalanced by the negative publicity that comes with it.
From a logistical point of view as well, the act of gazumping can have a domino effect on the rest of the house selling process, by creating a bottleneck that delays other buyers, surveys and things of that nature.
Why Might It Have Come Back?
So what market conditions have led to the possible re-emergence of gazumping in the current environment? The main market dynamic that relates to an upsurge in gazumping is an imbalance between the number of potential buyers and the number of sellers in the market at any one time.
Hometrack released figures in October 2013 showing that in September the supply of houses on the market contracted by 2% while demand for housing went up by 3%. The same report also purported to show that house prices had risen by 0.5% in the same month period. The result of this is what in economics is called a “sellers ‘ market.”
But isn’t this a good thing for people who are trying to sell their homes? Don’t we here at eMoov and the people that come to us want to be in the stronger position when it comes to selling homes? Well, it is a difficult balancing act to navigate. On the one hand being a seller in a seller’s market means that our clients are likely to get a greater number of higher offers for their property. But on the other hand, wide-scale gazumping acts to destroy confidence in the market mechanism, which could in turn lead to more and more potential buyers deciding to wait for a bit longer, which would in turn lower demand and bring prices down. There is also the human element to all of this, a family or individual that gets gazumped is going to be substantially set back.
Here at eMoov we believe that if you go about selling your house in the right way then there is no need to indulge in gazumping. We will handle all of the administration surrounding the offers you get, so that you don’t have to deal with juggling a large amount of different offers and different people. You can still get the best price possible for your property, while maintaining open and clear lines of communication with all of the people who are interested in your property and our team has been helping people do just that for over four years.
Sign up with us today and get your house sold in the New Year.