Gazumping

Definition

Gazumping occurs when a property seller accepts a higher offer from another buyer after initially agreeing to sell the property to a different buyer, but before the exchange of legally binding contracts. This practice is most commonly seen in real estate markets where the time between accepting an offer and signing the contract is substantial, giving sellers the opportunity to accept a more lucrative offer.

Examples

Example 1: Seller’s Perspective

John verbally agrees to sell his house to Mary for $300,000. While Mary is conducting her due diligence, Joe approaches John with an offer of $320,000. John decides to accept Joe’s offer, leaving Mary out in the cold despite her initial commitment and efforts.

Example 2: Buyer’s Perspective

Sarah agrees verbally to buy Tom’s property for $250,000. Before Sarah signs the contract, she finds another property that suits her needs better and withdraws her offer to Tom, leaving Tom without the promise of sale he initially counted on.

Frequently Asked Questions (FAQs)

What is gazumping in real estate?

Gazumping is the practice where a seller withdraws from an oral agreement to sell a property to a buyer because they have received a higher offer from another party, usually before a legal contract has been signed.

Why do sellers gazump buyers?

Sellers might gazump buyers if they receive a higher offer for their property or if market conditions change favorably, providing them a financial incentive to back out of the original agreement.

Is gazumping legal?

While gazumping is legal in some jurisdictions, it is considered ethically dubious. Real estate laws vary by location, and in some places, efforts are being made to reduce or eliminate gazumping through legislative measures.

Can buyers do anything to prevent being gazumped?

Buyers can negotiate shorter timeframes for the period between offer acceptance and contract signing, or seek to have some form of financial penalty for sellers who gazump. Additionally, some jurisdictions allow for pre-contract agreements that can provide more certainty.

Gazundering

Gazundering is when a buyer reduces their offer at the last minute, just before the exchange of contracts, compelling the seller to either accept the lower price or risk losing the sale altogether.

Due Diligence

Due diligence in real estate refers to the investigation period during which a buyer examines the property’s condition and legal aspects before finalizing the purchase.

Earnest Money Deposit

This is a deposit made by a buyer to demonstrate their intent to purchase a property. It can sometimes serve as a financial deterrent to gazumping, as the seller might forfeit the earnest money if they back out of the agreement.

Online Resources

References

“The Complexities of Gazumping and Gazundering in the UK Property Market” - Journal of Property Law
“Understanding Gazumping: Causes and Effects in Today’s Real Estate Market” - Real Estate and Property Science

Suggested Books for Further Studies

Real Estate Principles: A Value Approach by David C. Ling and Wayne R. Archer
Property Valuation and Market Cycle Stages by William H. Tiedeman
Legal Issues in Property Transactions by Peter Butt

Real Estate Basics: Gazumping Fundamentals Quiz

### What does gazumping mean in real estate? - [x] Accepting a higher offer after agreeing to sell to someone else. - [ ] Reducing the offer price at the last moment. - [ ] Conducting due diligence post-contract signing. - [ ] Searching for properties without engaging an agent. > **Explanation:** Gazumping is when a seller accepts a higher offer from another buyer after initially agreeing to sell the property to a different buyer, before signing a binding contract. ### Can a buyer gazump a seller? - [ ] Yes, by making a higher offer. - [x] No, buyers can only be the victims of gazumping. - [ ] Yes, by signing contracts quickly. - [ ] No, buyers always have to abide by the initial offer. > **Explanation:** Only sellers can gazump buyers by accepting a better offer before contracts are legally binding. ### What is the main risk to the buyer in a gazumping scenario? - [x] Losing the property after investing time and resources. - [ ] Getting the property at a lower price. - [ ] Reduced bargaining power. - [ ] Lengthy contract negotiations. > **Explanation:** Buyers risk losing the property after investing substantial time and resources in due diligence and other preparatory activities. ### Is gazumping considered ethical? - [ ] Always, as it benefits the seller. - [ ] Yes, in highly competitive markets. - [x] No, it is generally considered a dubious practice. - [ ] It depends on financial advisement. > **Explanation:** Despite being legal in some markets, gazumping is generally seen as an ethically dubious practice due to its impact on buyers. ### What is a key strategy to minimize gazumping? - [ ] Increase the initial offer. - [x] Shorten the time between offer acceptance and contract signing. - [ ] Lowering the deposit amount. - [ ] Avoiding negotiations altogether. > **Explanation:** To reduce the chances of being gazumped, buyers can negotiate a shorter timeframe between accepting the offer and signing the contract. ### What does the term "gazundering" refer to? - [x] When a buyer reduces their offer right before contract exchange. - [ ] Making multiple bids simultaneously. - [ ] A property inspection process. - [ ] Making a down payment after price negotiation. > **Explanation:** Gazundering is when a buyer lowers their offer amount just before the exchange of contracts, forcing the seller to accept the new price or lose the sale. ### In jurisdictions devoid of specific regulations against it, is gazumping legal? - [x] Yes - [ ] No - [ ] Yes, but only with government approval - [ ] Illegal in all forms > **Explanation:** Gazumping is legal in many jurisdictions in the absence of specific regulations against it, although it's ethically questionable. ### What's an effective financial deterrent to gazumping included in some property deals? - [ ] Higher appraisal fees - [ ] Longer inspection periods - [ ] Frequent valuations - [x] Earnest money deposit > **Explanation:** An earnest money deposit can act as a financial deterrent to gazumping since the seller might have to forfeit this amount if they back out. ### What is required to legally complete a real estate transaction and avoid gazumping? - [x] Signing a binding contract - [ ] Making an oral agreement - [ ] Paying an advisory fee - [ ] Conducting a neighborhood survey > **Explanation:** Signing a binding contract is necessary to legally complete a real estate transaction and prevent gazumping. ### Which platform provides comprehensive guidelines on avoiding gazumping? - [ ] Trade Journals - [ ] Housing Forums - [x] Homeowners Alliance - [ ] Municipal Websites > **Explanation:** The Homeowners Alliance provides comprehensive guidelines on how to avoid being gazumped in real estate transactions.