Gazumping - A buyer undercutting another buyer
Gazumping is a term is used to describe when an offer on a property gets accepted, when an offer from another person has already been agreed in principal. In most property sales three groups of people are involved these are sellers, buyers and agents. The sellers want the highest price possible, the buyers want the lowest price and the agents work for a commission price so the higher the price the higher the commission. These three groups of people want different things and this can lead to conflict such as gazumping.
Buyers - For buyers here is what happens with gazumping
The buyer finds the property they want, make an offer and verbally agree on the price with the seller. Sometime later, the agent says another buyer wants to buy the property - someone else offered more money. The original buyer has been gazumped.
The buyer may be given the chance to match or better the increased offer or get no chance because the home is sold and have not been asked if they would be prepared to pay more.
Buyers should be careful not to offer too low a price. Understand that the lower the price offered, the higher the risk that another buyer will offer more and gazump.
If it is at all possible try to meet the sellers, it is hard for sellers to gazump if they meet the buyer and like them.
Buyers can count on nothing being certain until the exchange of contracts. Between the time the sellers verbally agree to sell and the time they sign the contract, lots of things can happen.
Sellers
When selling property it is only natural to want to sell to the buyer who offers the highest price. But what if the seller verbally agrees to accept a price from one buyer and then another buyer offers a higher offer. The seller may not have realised, at the time of receiving the first offer, that someone else was prepared to pay more.
For the seller this is a difficult ethical dilemma. It is easy to say morally that sellers should honour their word. In practice it is not that easy, should the seller still be bound to honour their word and lose thousands of pounds?
The seller has no legal obligation until the contract is signed.
Agents.
When agents are employed by sellers, they have a duty to get the best price and to protect the value of the sellers property. The agent also has to inform the seller of a second offer for a property even after a first offer has been verbally accepted.
If an agent does not pass on an offer to a seller, the agent could be in professional trouble.
The agents do not own the property they sell. They are just paid agents - the people in the middle of the transaction.
The agent should inform the seller they have no legal obligation until the contract is signed.