What is Gazumping? And How to Avoid it

Huynh NguyenAugust 16, 2022

There are around half a million words in the English language, making it the seventh most verbose vocabulary in the world. If we count individual definitions, of which, there are 1.3m, English easily falls near the top of the global rankings. What about the number of words created each year, though? The Guardian newspaper places this figure at around 1,000, with megadrought, microplastics, and overtourism added to the dictionary in Spring 2022.

Subject to Contract

As a British phrase, the chances are that the term gazumping isn’t living rent-free in your head but it’s something that plenty of homeowners have had to deal with, regardless of where they live. The online mortgage broker Trussle defines gazumping as a rival bid on a house higher than everybody else’s. This can occur after another offer has been accepted so it can cause problems for a number of different parties.

Gazumping can result in the collapse of entire property chains, something that may produce financial losses. Oddly enough, it’s a completely legal thing to do as there are no contracts involved. Trussle adds that gazumping is allowed whether a home is under offer or sold subject to contract, with the wording of the latter phrase demonstrating that property sales are conditional until the bitter end.

The problem with gazumping is that the outcome is balanced against the person who has been outbid. For the seller, there are no costs associated with accepting another bid, and the fresh buyer is new to the chain. Meanwhile, the original purchaser may have paid for surveys, conveyancing costs, and broker fees. In a worst-case scenario, they may have to make alternative living arrangements, too.

Home Buyers Insurance

Can potential buyers avoid gazumping? In places where it’s legal, the answer is no – there’s no guaranteed way to prevent it from happening. However, it is possible to reduce the overall risk factor. Getting a mortgage in principle can help buyers to avoid gazumping by expediting the entire process and serving as reassurance that the buyer can afford the property they’re interested in.

For high-value properties, such as those near schools, competition is often fierce so it may be prudent to ask the seller to remove the property from the market. Whether this tactic succeeds is entirely dependent on the owner’s personality or whether they’re looking to move quickly. Sellers with options may want to keep it that way, extending the sale period for an indefinite amount of time.

Buyers also have access to insurance. Distinct from home insurance, which covers theft and damage from leaks and fires (etc.), home buyers insurance is designed to help people who have been gazumped by covering some of the fees mentioned earlier. This kind of insurance can be costly (upwards of $60 per month) but, compared to the kind of costs that home buying incurs, it’s a bit of a necessary evil.

Human Factors

Around one in three house sales do not complete for a range of reasons. These include everything from a need for repairs and an incorrect valuation to a simple change of mind. The simple truth is that the property market is influenced by a lot of human factors, such as lost jobs, so it can be quite a difficult thing to predict. Unfortunately, as house prices have risen 35% since 2020, this uncertainty is growing.

Homeownership is often considered a signifier of success but it’s a tough thing to achieve. As a potential buyer, making an effort to resist gazumping can make the whole process easier.