Trumping the gazumpers

YOUR MONEY The 1980s disease has returned to plague the housing market, but there are antidotes for buyers
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The Independent Online
The resurgence of gazumping in the housing market is leading to renewed calls to ban the practice.

The Estate Agents Ombudsman has recorded a doubling in the number of consumers mentioning this as a problem in recent months. The National Association of Estate Agents (NAEA) wants gazumping made illegal, while the Labour Party this week said it would examine ways of putting a stop to it.

Nick Rainsford, shadow minister for housing, says: "There is a very dangerous upwards inflationary spiral in house prices. We could have a serious problem by midway through next year if the market goes on like this."

Gazumping - where an offer is accepted on a property but the vendor then sells it to someone else - can cost buyers hundreds or even thousands of pounds in wasted solicitors' and surveyors' fees and other costs.

But the sad fact is that not only is gazumping perfectly legal, it is positively encouraged by the current law. This obliges estate agents to put any alternative offer to the seller up to the point when he or she is about to exchange contracts with a buyer.

Hugh Dunsmore-Hardy, chief executive of the NAEA, says both buyer and seller should be bound over at an earlier stage, so that if one party pulls out for no good reason the other should be compensated.

Mr Dunsmore-Hardy appealed for an independent review by the party that wins the next election, to give the consumer a better deal from the house purchase system.

The return of gazumping - which plagued buyers in the 1980s - reflects the combination of a shortage of good properties and strong demand in certain parts of the country, particularly London and the South East.

Fiona Davidson (not her real name), a 28-year-old actress from North London, was delighted when her pounds 60,000 offer was accepted on a one-bedroom flat. "I was told at the time that there wasn't another offer on the flat," she says. Aware of the fraught nature of the property market in the area, Ms Davidson sorted out a mortgage offer as quickly as she could.

Only after she had spent pounds 600 in legal and mortgage fees, did Ms Davidson find out that there another offer on the property and that it actually pre-dated her own. The property was on the books of several agents. Her agent found out through the grapevine about the other offer.

Had Ms Davidson known this at the time she would have kept away from the property altogether. "It was such a shock. I expected to do lots of running around," she says, "but to be misled, to be told by the agent that the vendor was definitely going with me..." Ms Davidson lost the property in the end, when the vendor's solicitor delayed sending her the contract for a number of days.

"My feeling was the seller didn't want too much poking around by the solicitors and so brought about a contracts race by issuing contracts at the same time," she says.

Buying your property at auction is one watertight, if drastic answer. Once the gavel comes down, the sale is final.

The "sealed bid" approach is increasingly used to control the incidence of gazumping. Howard Jenkins, partner of chartered surveyors Sherlock Jenkins Boswell in Southampton, says in Winchester there is such pressure on the housing market that in one case agents took a lot of people around en masse between 2pm and 4pm on a Thursday, and sealed bids were operated by midday the following day. The best bid won the property.

This method does not bind the seller legally to the winning offer. But it does tend to concentrate the mind and makes it less likely that they will consider further offers. Exclusive or "lock-out" contracts are also being promoted by some estate agents. These are voluntary arrangements entered into by buyer and seller, which offer the buyer a clear run on a property at a fixed price for a defined period. The contract involves a "consideration" or fee. This sum is non-refundable if the parties fail to exchange contracts. However, there is said to have been a limited uptake so far.

Alison Sandler, property lawyer at City solicitors Nicholson Graham & Jones, says the main disadvantage of the lock-out agreement is that it does not bind the vendor to exchange contracts. An unscrupulous operator could wait until the end of the lock-out period and then exchange contracts with someone else.

The Royal Institution of Chartered Surveyors is hoping to introduce a voluntary alternative next year called the "justice agreement". Parties will agree a provisional sale when an offer is agreed. If either the vendor or the purchaser seeks to withdraw or re-negotiate the sale figure (except for three specific reasons concerning problems to do with the survey or the title), the offending party must pay compensation to the other.

Buyers should consider the following tips:

q Try and have a conditional mortgage offer sorted out before you deal, so you are in a position to exchange more quickly.

q You may cut down on potential problems by buying through a sole agent. If the house is with multiple agencies, you are less likely to be able to find out about rival offers. Try and get close to the agent and persuade him or her to have the property taken off the market.

q Establishing a relationship with the seller may discourage shenanigans through estate agents.

q The seller's lawyer is bound by Law Society rules to advise of other dealings on a property to a purchaser's solicitor (although straightforward offers need not be communicated). This is a disciplinary matter for the solicitor, but allows no compensation for the purchaser.

q Dido Sandler works for the specialist publication, `Financial Adviser'.

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