I thought I had lost this particular post. We changed servers and when we did so a few blog posts vanished.
Having recently had conversations whereby the customer may have benefitted from reading this, I hunted around, and thankfully found a copy, so, here is is;
Gazumping, Gazundering, and Late Exchange of Contracts
What a topic, and, without wishing to scare customers, but recent events have prompted this post!
I am going to post the reasoning and logic behind this company’s opinion on this topic. I am hoping that as these blog posts are now separately listed by search engines that maybe somebody shall be able to influence their stress levels and possibly find a way to avoid being either out of pocket, or, close to a breakdown all because completing on a property can be so traumatic!
Lets hit this, one area / topic at a time.
This (by definition), officially is as simple as reducing the price of the housing during the negotiations. Errmmm, whilst that might be true, it barely scratches the surface of how this game gets played;
When we sell a house, or buy a house often very early on people start talking about dates. It is not uncommon for somebody (or three) to be setting their own emotional well being on a particular moving date even before searches have come back. Why? Well, because individuals in agents or solicitors offices in the interests of a quiet life simply say something like ‘oh, the 27th? Why yes Mrs Smith that is eminently do-able.’ And hey presto, now we have a member of the public arranging all their affairs and time off work specifically for a particular date, and easily, and often (we know, we’ve seen it!!!) before searches or a survey are sorted, and even before a formal mortgage offer has been received !
So, a really canny buyer uses this to their advantage. This buyer lets everyone get all setup for a particular date whilst they deliberately delay things, say returning a call the next day, or taking a short last minute holiday, or turning the mobile off, all so any exchange of contracts (the legally binding moment) can be delayed………..all the while others are still believing they are moving on a particular date. Because weeks ago a ‘professional’ told them it was possible.
So, huge emotional investment has been made, and still the agents and solicitors say ‘yes Mrs Smith, all on track for ‘x’ date, don’t worry.’ But Mrs Smith can start to worry, she has started making arrangements……and all of these arrangements hinge around that date she was given weeks ago. Redirection of post, hubby’s time off work, her time off work. Grandparents arranged and the cattery booked etc etc etc etc.
So, we get to a week before completion, and absolutely nobody now is backing down from the date they were given originally, despite the actual exchange of contracts moving ever closer to this date.
To learn more about ‘exchange of contracts’ – This blog post might be useful (scroll down a bit)
Mrs Smiths buyers are away on the next proposed day of exchange, and so it gets delayed, then the next day they are out of signal, and the next they pop up and say they have a couple of queries on the survey. Now we are 48 hours from a supposed completion and the entire chain are now informed exchange will happen the day before completion day……………..
On the day before – Mrs Smiths buyers send a message that there are a few bits on the survey (or any other of a thousand excuses) that they are concerned about and so they are dropping their offer by £10,000. So what would Mrs Smith like to do?
It is at this moment Mrs Smith realises she literally, both financially and emotionally cannot afford not to move. And so, as happens so often, negotiations begin, and if she is lucky she may settle on five grand off the previously agreed figure.
The estate agent, well, 1.5% of £5000 is only £75, and it’d cost them more than that to put the house back on the market. The solicitor, well, they’ll certainly get paid, and hey – if this sale falls through they might now get an extra set of work, and that too would have to be paid for………
Mrs Smith, well Mrs Smith is sobbing, and wondering why this has happened, and, as I have heard in the past wondering ‘why on earth none of the ‘professionals’ warned her this could happen.‘
Welcome to how Gazundering really works.
This. This is why we bore the pants off our customers by repeatedly telling them to demand 2 weeks between exchange and completion, and to make the exchange date the focus of attention, and not the completion date.
Ok, this is a bit like Gazundering, but in reverse. Being gazumped is again avoidable to a great extent by a decent timeframe between exchange and completion, but it does tend to happen fairly early on in the process.
This is where the buyer finds that the seller, despite accepting their offer keeps the house marketed, and insists that they are still able to show people round and have it marketed.
From their point of view they consider it sensible because from their end, the house isn’t actually sold until they have exchange of contracts.
So, lets say you offer £288k on a £330k house and it’s accepted. You instruct solicitor etc etc but the seller keeps on allowing viewings (or demanding viewings) and then, 5 weeks later gets an offer of £305k and accepts this.
You will then be given the option to beat the £305k, or lose the house.
Welcome to gazumping. Most likely to happen if all the people working for you drag their feet and cause uncertainty amongst the homeowners in the chain. And only the buyer being gazumped loses, nobody else.
Well, all too often when the property is sold, the same solicitors and agents simply go along with what their clients say or provide a stock answer. So, a week after the sale when Mrs Smith says ‘ so, it should take 8-12 weeks?’ she simply gets agreed with. However, because Mrs Smith places her faith and trust in them she quite understandably take this answer as ‘set in stone’, and so when 15-16 weeks have passed she gets very very twitchy.
Nobody makes an effort to address her concerns and so she wonders if her buyers are having second thoughts, as do the sellers of the house she is buying…and on we go.
We have seen this build up of tension over many months on numerous occasions. The result is always angst, and during this angst, with people getting nervous, some sellers will tell the agent to market the house ‘on the quiet’ simply because, without any news to the contrary they presume for themselves the buyer is having second thoughts.
ETA: 3/9/14 – recently meeting customers being told by idiots working for estate agents that the total timeframe is 6-8 weeks. In reality, right now, in certain areas it is taking that long just to get the local searches back! So, think 12-17 weeks…….
And so, you have gazumping and gazundering.
I’m not going to drone on about the timeframes, nor the severe lack of proper ‘rules’ or protocols for this process.
However, if anyone wants any advice borne from watching people go through these ‘events’ feel free to get in touch.
p.s Mrs Smith is fictional, but the events above are not.
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from Wiki : http://en.wikipedia.org/wiki/Exchanging_contracts
Exchanging contracts is the final step in house purchase, under English law, and occurs after a solicitor has carried out all necessary searches and there is agreement to the contract terms. Once each party has signed the contracts and they have been exchanged, they are binding.
The contracts will include a completion date, which is the date that the property becomes acquired by the purchaser. At exchange of contracts, any deposit needed has to be paid, and arrangements for building insurance must be made so that the property is insured from that day. Usually, the present insurer will cover this new property free of increased premium until the completion date.
This is a system that only occurs under English law, and the exchange of contracts can occur many weeks or months after a sale offer has been agreed in principle. This contrasts with most countries where the house sale becomes legally binding very quickly. This causes many house sales to not complete. As such there is dissatisfaction with the process and petitions such as  have been created.