With buoyant property prices in the late 1980s and early 1990s, gazumping became commonplace because a buyer’s offer is not legally binding even after acceptance of the offer by the vendor. This is because, by s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 and in order to prevent dishonesty, a contract for the sale of land must be in writing, a requirement that dates back to the Statute of Frauds of 1677. Perhaps ironically, this requirement was originally intended to promote good faith and certainty in land transactions.
When the owner accepts the offer on a property, the buyer will usually not yet have commissioned a building survey nor will the buyer have yet had the opportunity to commission legal due diligence via his solicitor. The offer to purchase is made “subject to contract” and thus, until written contracts are exchanged either party can pull out at any time. It can take as long as 10–12 weeks for legal formalities to be completed, and if the seller is tempted by a higher offer during this period it leaves the buyer disappointed and out-of-pocket.
When property prices are in decline the practice of gazumping becomes rare. The term ‘gazundering’ has been coined for the opposite practice whereby the buyer waits until everybody is poised to exchange contracts before lowering the offer on the property, threatening the collapse of a whole chain of house sales waiting for the deal to go through. ‘Gazanging’ describes a similar situation, where a seller pulls out of a sale entirely; expecting to get a better asking price once the market improves.
We at PLS would point out that the purchaser should be aware of the risk of gazumping as it is unfortunately unavoidable. However, we strive to ensure that this risk is minimised as much as possible by making sure that the period between offer and exchange of contracts is as short as possible.
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