Moving house is rated as one of the top three stressful events in life, alongside death and divorce, heaven forbid. Just when you thought it couldn’t get any worse, along trundles the devilish duo of gazumping and gazundering. Derived from the Yiddish word ‘gazumph’ (to overcharge or cheat) these twin horsemen of the property apocalypse are the uninvited guests of a bull and bear residential property market. Saying that, while they strike fear into the heart of buyers and sellers, gazumping and gazundering are prime economic indicators that tell you a lot about the state of the economy, cost of borrowing and the supply of properties available to buy or rent.
Market Financial Solutions (MFS) surveyed a nationally representative sample of 524 UK adults, all of whom had bought a residential property in England or Wales within the past decade. The survey was conducted in April 2022 and found that 31% of property buyers in England and Wales have been gazumped at least once since 2012. This was worse in London (no surprise) where the figure was an astonishing 51%.
According to financialreporter.co.uk it’s not just about missing out on one’s dream home. Some 37% of buyers mentioned the collateral damage of having to still pay solicitor and surveyor fees even though the purchase never happened. Overall, 23% of gazumpees (or whatever the collective noun is) lost money in the process.
Mitigating the Risks
While you can and shouldn’t eradicate all danger in life, let alone the battleground that is property, Glentree have managed to mitigate most of the risks. For instance, when we took on the sale of a London property, about 18 months ago, let’s say in the region of £2million, we would have around 40 applicants beating a path to the door, in the short space of two weeks. This would produce at least five offers.
In such a scenario, we would advise the seller to set a guide price rather than a formal asking price. This encourages purchasers to offer more, since it’s within the bounds of reality.
Ordinarily, this would provoke a gazumping war and so as to avoid this and dignify the process, we organise for an informal tender whereby all willing participants are encouraged to make their best offer, subject to contract, along the lines of strict rules unique to Glentree. These are designed to anticipate ‘spoiling bids’, i.e., offer terms from a shrewd purchaser which are arranged to secure ‘first place’. These can be negotiated downwards, leaving the seller with financial egg all over their face.
This can generate strong opinions, but the process usually brings an outstanding offer – after all, that’s why we’re in this game. The offer comes with a fidelity period, giving the buyer a great opportunity to spend money on due diligence and buy the property, without competing offers snapping at their heels.
As skilled property ‘matchmakers’, Glentree organises a buyer and seller face-to-face meeting to exchange a moral contract. A handshake seals the deal, on the terms agreed. We take great care to spell these out in exact detail, which helps to glue the parties together until the formal exchange of contracts.
Market Relatively Tranquil
Unlike the frenzied turbulence of recent years, today’s market is relatively tranquil. Instead of a queue for properties resembling that of a Harrods sale, the property will see a manageable ten viewers in the space of two weeks, resulting in one or two offers to purchase. Like finding the perfect job, house, or partner, you only need one.
The adage of not believing everything you read in the press has much truth.
We’re fed a constant media diet of economic doom and gloom, yet Glentree has experienced two recent examples of gazumping on a £10million sale and even more recently on an £18million sale, both in Hampstead Garden Suburb, London.
Although this doesn’t happen every day, it’s indicative of a) lack of supply and b) the eternal truth that quality properties are always in demand. Even with circa 6.7% inflation, a 5.25% lending rate and a plethora of loan sharks trying to mug the vulnerable borrower, you would expect more properties for sale with a diminishing amount of buyers, but the situation tells us otherwise.
One reason may be that the market is kept ‘on hold’ until there’s a reaction to the increase in lending rates. Many borrowers opted for the three-to-five-year fixed rate mortgages, which delays the economic pain for some time.
Interest Rates Held
Only yesterday the Governor of the BoE announced that the present interest rate level will stay at 5.25%, but I am sure there is another quarter point in his arsenal ready to impose on us in the next few months, in order to bear down on inflation.
Meanwhile, the opposite (but equally frustrating) process of gazundering is happening in the London micro-markets – there is slightly more supply here, especially of new homes, which are sprouting like mushrooms. Buyers are either being squeezed by the lending institutions or there is a chain of sales dragging down the buyer which can lead to cheeky (and loss-making) renegotiations at the finish line.
As always, there are chancers, who will exploit the current economic fragility to their advantage, at the expense of the seller. They will wait until the last nano-second and then renegotiate terms just before the exchange of contracts, often leaving the seller hung out to dry, with little choice but to reluctantly accept the lower terms.
We don’t approve of this tactic, but if the seller needs to liquidate their asset and release cash then they have to concede.
Although we try to identify these chancers early on, it’s not always possible, since they don’t come with a sign around their neck. Our belief is that even if you have exchanged a moral contract the deal will only hang together if the seller receives a gazumping bid of more than 3% of the previously agreed terms.
Other Land-Buying Protocols
Scottish and American land-buying protocols are designed to eradicate the gazumping/gazundering menace and are based around an instant exchange of contract, subject to survey and finance. However, even these systems can be abused by a Machiavellian purchaser.
The only effective way to eliminate this scourge is for the buyer to organise their finance by way of a mortgage offer beforehand and have an independent structural survey. The exchange of contracts can be arranged at warp speed (i.e., within a matter of hours) if the solicitors have got their act together and can prepare all the necessary documents.
Boy Scouts
Like the Boy Scouts, Glentree is prepared for every eventuality. We have a cadre of expert surveyors ready to carry out a survey of the property at a moment’s notice. The laws of the land, sadly, are inadequate in this area and still allow the nefarious practices of gazumping and gazundering, which can leave a seller feeling like they’ve been the victim of a Viking rampage crossed with a mugging. That’s why our normal practice is to insist that the seller’s solicitor assembles not only an EPC (Energy Performance Certificate) but an information pack which includes the property information form and up-to-date local searches from the presiding borough (which are kept current every 12 weeks). This permits an exchange of contracts to be consolidated very quickly (even within hours) and reduces the chance of the buyer gazundering or gazumping the seller.
Like any other decision in life, buying a home is driven by emotion as much as finance. This fact alone can give rise to an incendiary reaction with much fall-out. All we can do is manage the process to give everyone the best outcome.