Buyer beware - bad faith is back
The housing market: as confidence slowly returns, so does gazumping
Sunday 05 May 1996
Hugh Dunsmore-Hardy, chief executive of the National Association of Estate Agents, says that so far this year there has been a substantial rise in complaints to the NAEA about sellers reneging on prior agreements after receiving higher offers.
The NAEA had previously fielded a barrage of calls about "gazundering" - where buyers use a variety of excuses (such as potential repair bills or less than satisfactory surveys) to demand a reduction in price.
Both a resurgence in house-price optimism and a shortage of what estate agents call "desirable properties at sensible prices" have fuelled the gazumping renaissance.
Confidence in the housing market has hit a four-year high, Britannia building society claimed last week, while the Halifax reported a ninth consecutive monthly rise in its house-price index, giving a 2.7 per cent year-on-year increase in average prices.
But sellers are still loathe to sell for less than they paid, with the result that buyers are competing for the few good, reasonably priced properties available.
Christopher Hook, of Hampton's estate agents in St John's Wood, London, notes: "In our part of the world, we've found a dearth of quality family homes. If one comes on to the market, there can be a high level of interest and gazumping."
Trevor Abrahmsohn, chief executive of the London estate agents Glentree Estates, adds: "Gazumping is bound to get worse until the shortage of better-priced stock is put right."
The Scottish system is often cited as a panacea to the situation in England and Wales where buyers have little power to prevent vendors changing their minds until contracts are exchanged.
"In Scotland, buyers put in what are called 'missives' (offers to purchase) and properties are advertised with closing dates," says Mr Dunsmore-Hardy. "Once that date falls due, lawyers acting for the seller decide which bid to accept and that offer becomes binding.
"However, gazumping does happen in Scotland, as conditions attached to the sale still give vendors the opportunity to pull out. This is tough on buyers who have already paid for a survey."
Few professions are as indelibly tarred with the brush of sharp practice as estate agents. So it is no surprise that buyers often blame agents for being gazumped. None the less, Mr Hook insists, reputable firms can impose their own safeguards. He cites the example of a recent sole-agency sale through his office. One person within the firm safeguarded the vendors' interests while individual negotiators reported offers to him independently. At the end of a certain period, the vendor simply chose the bid that met his financial and logistical requirements.
"Lock-out" agreements can help. These, usually informally, give buyers a specific timeframe in which to exchange, while vendors undertake not to deal with anyone else during that period. The NAEA would also like see the Government bring in a system of conditional contracts, which would give more certainty at an earlier stage of conveyancing.
But is gazumping necessarily wrong? Mr Abrahmsohn contends that gazumping is a product of market forces. "We sometimes encourage legitimate gazumping by setting a guideline price sufficiently interesting for purchasers to exceed," he says. "We then submit the best bids to our vendor, harnessing gazumping in the same way as auctioneers. I see nothing wrong with that at all."
Mr Abrahmsohn's approach is underpinned by what he calls "a pledge of commitment". Buyer and seller shake hands on the deal, pledging not to be distracted by higher offers and/or another house in better condition.
Buyers' only real protection may be to move as fast as possible once they find somewhere they like. Given all the papers on a freehold sale and a quiet phone, most solicitors can complete the necessary conveyancing in a matter of hours. By comparison, weeks spent exchanging correspondence not only enables the legal profession to justify its fees but also gives sellers more time to change their minds.
As Voltaire once said, “Ice cream is exquisite. What a pity it isn’t illegal”
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