Gazumping? Back? Really?
The hearts of those in the conveyancing industry must have sunk to the floor when reading the flurry of recent headlines about gazumping.
For those who are too young to remember, gazumping is a situation where a buyer’s offer to purchase a property is accepted and the conveyancing process begins but before exchange of contracts, the seller subsequently accepts a higher offer from someone else, leaving the original buyer out in the cold with the associated costs and disappointment.
Many national newspapers have reported that research which revealed that more than a third of conveyancing transactions were subject of gazumping in the last year and it was the leading cause of property deals not proceeding.
Gazumping is not illegal. If a seller wants to accept a higher offer from another buyer to maximise their return, they are entitled to do so. Gazumping is also not in breach of contract because, by definition, it happens before exchange. The nature of the conveyancing process in England and Wales is such that neither seller nor buyer are legally bound to each other until exchange of contracts takes place. Thus, either party can walk away (or, proceed with someone else) with no contractual liability. In this case, both parties will have incurred some costs but the whole point of the process is to enable a buyer to carry out full due diligence on the property that they are purchasing prior to exchange.
But, of course, what irritates people about gazumping is that it feels wrong. It feels morally unacceptable that a seller should be able to offload a keen buyer who may have spent money on a survey and searches, in pursuit of a higher offer. But it feels wrong because we are dealing with someone’s home. On the first visit, the buyer is probably already deciding what colour curtains to hang, where the sofa will fit and whether the primary school round the corner will be suitable for their child.
A strange feature of the conveyancing process is that it is the biggest financial transaction that most people will carry out in their lives, but very few sellers and buyers treat it as a business transaction. This is why gazumping feels unacceptable.
But it needn’t be like this. Both seller and buyer could choose to enter into a reservation agreement. As these articles have pointed out before, there was much talk about reservation agreements pre-pandemic and the government was keen but of course everything got derailed in early 2020.
The conveyancing market does not need to reinvent the wheel. Conveyancing organisations do not need to wring their hands and look for innovation. The solution is already here.
Gazeal also offers a straightforward reservation agreement. It has the benefit of specifying clear conditions for withdrawal without penalty. But the really clever bit about their reservation agreement is that the use of a financial guarantee, rather than the payment of a large sum on signing by the buyer, means it offers the unique benefit of tying in both seller and buyer at the outset for only modest outlay by both them.
We all know that the SDLT ‘no-holiday-for-conveyancers’ first cliff edge of 30 June 2021 has now passed but of course, there is another coming up on 30 September 2021. There seems to be little slowing down of the conveyancing market. It is therefore fair to assume that gazumping will remain a feature of the market. It need not do if buyers and sellers have the good sense to adopt the Gazeal reservation agreement.
Lorraine Richardson (M.A.) Cantab is MD of Adapt Law Ltd