What does ‘Gazumping’ and ‘Gazundering’ mean?.

When it comes to buying a home, the journey from A to Buy isn’t always straightforward.

In this article, we take a look at two potential pitfalls that could derail your purchase – gazumping and gazundering – and how you can avoid them.

Gazumping

What is gazumping?

You’ve found your dream home, put an offer in and it’s been accepted. Time to break out the bubbly and toast the next chapter in your life, right? Unfortunately, until you’ve exchanged contracts, you can still end up being gazumped.

Definition:

Gazump (/ɡəˈzʌmp/) - When a seller accepts a higher offer from a buyer, after already accepting another offer from another buyer. Gazumping can happen at any time between an offer being made and the exchange of contracts.

Gazumping is a growing issue that home buyers in England and Wales are facing. While rules and regulations are in place to help mitigate the problem in Scotland, a recent study claimed that, since 2014, 38% of English and Welsh home buyers had experienced gazumping at least once.

With an average time of 15 weeks between an offer being accepted and the purchase being completed, there’s plenty of opportunity for another buyer to swoop in with a bigger offer at any time. And if you’ve already paid surveyor and solicitor fees, you won’t get them back.

What is causing the rise in gazumping?

A lack of quality housing stock and excess demand has continued to drive up both house prices and competition. Although 78% of people surveyed were in favour of banning gazumping, the same study reported that 46% of people would consider gazumping to get the property they wanted.

• Are Millennials still aspiring to own their own homes? Our own research suggests that 60% have ambitions to purchase a property in the next five to ten years, adding to the competitive market for buyers.

How does gazumping cause property chain breaks?

Unless you’re a cash buyer, the likelihood is that your house sale will be part of a chain, with purchases being dependent on other purchases completing first. For example, a buyer can’t move if they don’t have the funds from their sale (a ‘downward’ chain), or the seller of the house they want to purchase hasn’t completed on a new property (an ‘upward’ chain).

So, when gazumping happens, it can cause a chain break that affects everyone in the chain by adding more time to each purchase. This can also lead to offers being rescinded and more gazumping taking place, causing even more frustration.

“Sadly with less stock available, increased demand and competition for housing will always lead to the threat of a higher offer scuppering an agreed sale. But those buyers who arm themselves with agreed finances in place up front will always have an extra card in their hand.”

Ryan Etchells, Chief Commercial Officer at Together

How can using a bridging loan help avoid gazumping?

Gazumping can only occur before the exchange of contracts. After that point, the seller is legally obliged to sell the property and cannot accept a higher bid. Unfortunately, the gap between an offer and an exchange of contracts can take 15 weeks on average. That’s 15 weeks where something can go wrong.

Why does it take so long? Being in a ‘downward’ property chain could be one of the reasons for the delay as you need to wait for your own sale to complete, and your funds to be available, before you can complete the conveyance process and exchange contracts.

Bridging loans can be organised quickly so you can get access to the funds you need to break away from the chain. This can speed up the process between offer and contract exchange, and reduce the amount of time a would-be gazumper has to table a higher offer.

Gazundering

What is gazundering?

You’re a couple of weeks away from finally completing the sale of your house, and you get an email from your buyer wanting to lower their offer. They can’t do that, right?

Just as a seller can accept another offer right up to the contract exchange, a buyer can change their offer – a practice known as gazundering.

Definition:

Gazunder (/ɡəˈzʌndə/) - When the buyer attempts to lower the previously agreed price they’ve offered on a property, typically just before the exchange of contracts. The timing of this tactic puts pressure on the seller to accept as they could lose out on the funds needed to finance their own purchase.

Similar to gazumping, the tactic of gazundering isn’t as common-place in Scotland, due to rules and regulations placed on solicitors by The Law Society. This hasn’t stopped many people in England and Wales experiencing it, with more than a quarter of people saying that a buyer entered a new, lower offer after their initial offer was accepted.

What is causing the rise in gazundering?

The same factors that are causing gazumping – competition and high house prices – are fuelling the boom in gazundering as well.

Buyers may choose to gazunder because:

• They’ve realised that the offer they’ve made is too high.


• Buyers may not be able to secure finances for the amount they’ve offered, or may have reconsidered based on their perceived market value of the property.


• They want to force a discount.


• By entering a lower offer at the eleventh hour (just before the exchange of contracts), the buyer is banking on the seller having no choice but to accept as they may have another purchase, or purchases, reliant on funding from the sale.

How can using a bridging loan help to avoid gazundering?

With a bridging loan, the seller can put themselves in a much stronger position when a buyer attempts to gazunder them.

Instead of relying on funds generated by the sale of their property, the seller can turn down the low-ball offer and use a bridging loan to purchase their next home, if needed. They can then wait up to 12 months for the right offer to come through, paying back the bridging loan and interest in one lump sum once their house is sold.

What are the risks of a bridging loan?

When it comes to gazumping and gazundering, we are typically talking about a chain break bridging loan where the loan will be repaid in one lump sum, with accrued interest, from the proceeds of a house sale. It must be repaid within 12 months – bridging finance is a short-term finance option only. This means that:

1. If you don’t sell your house within 12 months, you will need to find alternative funding to pay back the bridging loan. You can speak to your lender to see if they can suggest a different payment plan, but, ultimately, not repaying could result in your property being repossessed.


2. Interest accrues every month. The longer it takes to sell your home and repay the loan, the more it will cost you. Our bridging loans don’t include an Early Repayment Charge (ERC) so you won’t be penalised for repaying early, even if it’s after only one month.

You can also find more info on the benefits, risks and other uses of bridging finance in our informative guides - From A to Buy: Ten frequently asked bridging finance questions and Bridging loans: Nine scenarios where short-term finance can get you from A to Buy.

So, whether you’re a buyer or seller, gazumped or gazundered; you can put the power back in your own hands with a bridging loan.

Get in touch with our expert team to find out how a bridging loan from Together can help you get your property chain moving.