When a ground and basement flat at a sought-after address in London’s Notting Hill came down in price by tens of thousands of pounds over a period of weeks, canny buyers started to finally show interest. Once an offer was made for the home at the posh Elgin Crescent, others started to pile in, eventually resulting in the perceived value of the flat rising back up again, and selling for several thousand pounds over the original asking price.
The original buyer, whose reasonable offer had been accepted by the seller was "gazumped" by a late-arriving buyer prepared to pay more in an underhand practice real estate agents say is becoming much more common in U.K. property transactions.
This phenomenon of out-pricing a buyer with a higher bid before contracts are exchanged but after an offer has been accepted by the seller, is a sneaky tactic normally associated with a booming real estate market, but it is happening right now in the U.K. despite a stagnant environment. So-called "Gazumping," is at a six-year high all over Britain, data from estate agencies show.
"When the watchers decide the bottom has been reached, in they go," said Nina Harrison, a London specialist at buying agency Harington who represented a buyer offering at Elgin Crescent. But they’re not always going to be the only one," she said, and that’s when you get gazumping. The practice, and the term, are not unique to Great Britain. However, other countries, like France and Scotland, have rules in place to stop gazumping, namely requiring a buyer to put down a deposit to secure an offer. But in England and Wales, property deals are still based in the early stages on a "gentleman’s agreement," and there is no legal protection for buyers who’ve had offers accepted, even if they have paid out for legal fees and property surveys.
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Last year, government policymakers met with senior members of the U.K.’s National Association of Estate Agents to discuss the possibility of simplifying the buying process, including measures to end gazumping but no law has yet been put in place.
And in the east of England, 5.7% of offers accepted between January and July of this year had been later rejected in favor of a higher one from another buyer, estate agency Countrywide found, an increase of 1% since 2011. In the East Midlands, the rate is 4%, double the rate seen in 2011.
The same pattern was found by online estate agency eMoov, whose research of 1,000 buyers in July showed that more than one-third had been been gazumped on a recent property purchase. Since 2015, when an annual fall in the number of U.K. homeowners being gazumped was recorded, the "underhand practice" has become much more prominent, the agency believes, especially in London.
"Traditionally [gazumping] becomes rife in over-inflated markets where high demand, and higher prices push buyers to resort to dirty tactics in their desperation to secure the property they want," said Russell Quirk, CEO of eMoov.co.uk.
A lack of supply in pockets of London is leading to more incidences of the practice, Mr. Quirk said.
But some of the more affordable regions of the U.K., such as the North West and the Midlands, are also seeing large levels of gazumping, eMoov found. The London market remains the most cutthroat by a long shot, but buyers are still being gazumped nationwide from Manchester, Liverpool, Newcastle, Leeds, Brighton, Reading and Cardiff.
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Vast interest in most desirable properties
One of the most likely reasons for the rise in this practice is the aforementioned lack of inventory, since not enough people are selling. The most desirable properties are coming on the market less frequently, and causing a flurry of excitement when they do.
"Whilst most accept that the housing market is currently a shadow of its former self, the best of the best continues to sell well regardless," said Ed Heaton, founder and managing partner of buying agents Heaton & Partners.
"Our clients have been gazumped on three separate occasions this year," Mr. Heaton said. "On one occasion by over £1 million (US$1.29 million). We have also successfully gazumped on several others," he said, of deals in London and across the British countryside.
Caspar Harvard Walls, a partner at buying agent Black Brick, said gazumping is becoming more prevalent especially in the £2 million to £5 million (US$2.59 million to US$6.49 million) price range, where supply is lowest.
"With falling prices and low interest rates, many vendors are choosing not to sell and instead hold onto their property until market conditions improve," he said. "This is resulting in a shortage of stock for prospective buyers, causing a demand-supply imbalance, which is leading to increased competition for the very best properties."
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David Adams, head of Prime Central London at Humbert's Mayfair, attributed the rise in gazumping to uncertainty in the market as a result of issues such as Brexit, with buyers underestimating their competition.
In today’s slower market, weighed down in part by stamp duties, buyers often think they have all the time in the world to make an offer on a property. But when someone else makes a move on a property they’re interested in, and that offer is accepted, it justifies the price and a bidding war—and then gazumping often follows, he explained.
"We have had gazumping offers on a £6 million flat and we have also seen it on £90 million houses," Mr. Adams said.
How to avoid being gazumped
There are steps a buyer can take to avoid losing out on a property. Buyers are more likely to be gazumped if they don’t engage in a fair negotiations—the right price for a property is reached when both the seller and purchaser are happy, otherwise a vendor might be tempted by a sneaky better offer.
Also, the fewer delays in the transaction process, the more likely the purchase is to succeed, said Rachel Johnston, regional director of Stacks Property Search in Buckinghamshire and East Oxfordshire.
Buyers should also push for the property to be taken off the market, off the listing portals, and off the agent’s website once an offer is accepted, and ask for viewings to cease, she added.
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From gazumping to gazundering
Some agents believe that the prevalence of gazumping is being exaggerated, however, and that it is actually gazundering—a play on the word "under," where the buyer suddenly lowers how much they are prepared to pay for a property after a price has been agreed—that is the biggest issue in the U.K. property market right now.
David Lee, head of sales for Pastor Real Estate, has seen buyers reduce their offers on the day of exchange. "Few vendors are willing to accept this practice, but that is not to say that it doesn’t exist," he said.
Matthew Turner, CEO at Astute Property Search, for one, is an advocate of making a low offer.
"Buyers are holding the cards and my advice to them is to discover the motivation of the seller," he said. "Find the one that needs to move and go in with a lower offer. I am advising clients to be bold, work out their figures and then start off 10% to 5% lower than that figure."
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