Want to avoid Gazumping? – Look to auction.
You may have seen press reports over the weekend about how the Communities Secretary Sajid Javid wants to clamp down on gazumping to help make buying a house easier and cheaper. I was really pleased to see this being talked about so widely as it’s an obstacle we’ve been having to tackle for many years and is something that far too often can cause a sale to collapse.
It’s one of the reasons I love working for an auction business – we avoid gazumping entirely.
To explain, gazumping happens when a seller has verbally agreed a sale price for their property but then later accepts a higher offer from another purchaser subsequently meaning the original buyer loses the property. It can also occur when a seller raises the asking price at the last minute after previously accepting a lower offer.
With an unconditional sale by auction the exchange takes place on the fall of the hammer in the auction room. The buyer pays their 10 per cent deposit and the sale is secure making gazumping impossible. Who doesn’t want that?
Once contracts have exchanged, the sale is legally-binding and a deposit is paid meaning the buyer cannot pull out of the sale and the seller cannot agree a sale with another party.
Currently with private treaty sales, the exchange of contracts usually only takes around 12 weeks or more after the initial verbal offer has been accepted. That’s three months for the seller to potentially accept another offer and break the sale chain. A concern in any sale.
With our sales by auction, the seller gets four weeks of advertising prior to auction, on auction day when the property sells under the hammer contracts are exchanged and completion takes place only four weeks later. That’s a maximum time of eight weeks for a secure sale.
Also, as part of Mr Javid’s plans to clamp down on gazumping he is looking at encouraging sellers to put more data online to speed up the house-buying process and encourage buyers and sellers to pull together evidence so homes are ready for sale.
This is also addressed with a sale by auction as it cannot take place without a legal pack for the property. We ask all our vendors to instruct their solicitors to create this pack for potential buyers to review as part of their due diligence process prior to bidding.
A legal pack can often include water & drainage and local authority searches, special conditions, Land Registry documents and the Energy Performance Certificate (EPC) meaning buyers have full disclosure of the property they are purchasing. Of course we always recommend they view the property in person too – just in case!
However, even with all these safeguards we do appreciate that many buyers do not consider a sale by auction as their first option when looking to dispose of their property. It is still largely thought of as a last resort option but that’s simply not the case in recent years.
The sale of property by auction is becoming increasing popular – we have sold more than 1,110 lots so far this year and raised over £120m in sales – yet it only accounts for around 3% of the total property sales in the UK. I would hesitate a guess that that percentage will rise in coming years if Mr Javid’s plans come to fruition.
If you look at Australia for example – where gazumping also takes place – the percentage of auction sales is much higher at around 30%, a rise of around 10% on the previous two or three years, possibly again to avoid sales falling through…?
The eight-week call for evidence from across the property industry launched today will provide interesting reading and can be nothing but positive for seller and buyers alike. Whatever the outcome it should make the process of buying a property much more straightforward which is great news for all concerned.
Written by Andy Thompson