With the property market as overheated as ever, there is a continuing risk of potential buyers being outbid before they can exchange contracts on a purchase. Known as gazumping, the incidence of offering more money for a property where a sale has already been agreed in principle tends to increase where there is a shortage of property for sale.
The recently released Isle of Man Housing Market Review 2020 has revealed that the average house price increased by more than 7% last year. Estate agents on the island have reported exceptional demand, coupled with a lack of stock.
There is unfortunately nothing illegal about gazumping, as a sale is not legally binding until the point at which contracts are exchanged. Estate agents are legally bound to pass on all offers made on a property. When gazumping happens, it can leave the original buyer out of pocket in respect of costs such as search fees, the cost of a survey, legal expenses and mortgage arrangement fees. In a hot market, it is not unheard of for buyers to be gazumped on more than one occasion.
There are a number of ways to reduce the risk of being gazumped, as follows:
Be Ready To Go
Try and be as prepared as possible in readiness for having an offer accepted. If you will be tying in a sale, make sure that this is as advanced as possible and work with your advocate to provide all the information needed without any delays.
Being organised right from the start will not only allow you to exchange contracts as quickly as possible, it will also demonstrate to the sellers and their estate agent that you are a serious buyer and a good prospect for a successful transaction.
Obtain A Mortgage In Principle
It is possible to arrange a mortgage before you have an offer accepted. This is known as a mortgage in principle. Doing this will mean that a substantial amount of the mortgage lender’s work has been done upfront, so that once you have found a property to buy it will not take them very long to issue a mortgage offer. This can be particularly important in a busy market when lenders have large workloads.
Instruct An Advocate
Instructing an advocate in advance will also give you a head start. They will be able to open a file and do the necessary preliminary work, such as verifying your identity and getting the money ready to pay for searches. Being able to give the estate agent your advocate’s details as soon as you have an offer accepted will also show that you are a serious buyer and ready to proceed straight away.
Ask for the property to be taken off of the market
You can ask the buyer and their estate agent to take the property off of the market. They may be willing to do this and it means that other potential buyers should not see it actively advertised for sale.
Ask For An Exclusivity Agreement
In some instances, a seller may be prepared to agree to an exclusivity or lock-in agreement, although this is less likely in a vigorous seller’s market. An exclusivity agreement is a legally binding contract where both sides agree to go ahead with the transaction unless something unforeseen comes to light, such as a major issue with the survey or where the searches reveal an issue.
When signing the agreement, both parties would pay a sum of money. If one party defaults on the agreement, then this sum would be payable to the other party. For more information on exclusivity agreements, see our article on avoiding gazumping.
Foster A Good Relationship
Simply being a good buyer can go a long way to making the seller feel positively towards you. If they know that you genuinely love their property and they can see that you are being open, easy-going and helpful, it could make a difference in whether they decide to go with a higher offer or not. If they can see that you are doing everything you can to exchange contracts quickly and that your advocate is keeping their advocate and the estate agent updated throughout, you may still be the more attractive option to the sellers.
At Quinn Legal our experienced property advocates understand the importance of dealing quickly with your transaction. We will work proactively on your behalf to reach exchange of contracts without unnecessary delays and do all we can to ensure your purchase is successful.
If you are buying or selling a property and would like to instruct an advocate to act on your behalf or you have questions about the process, please feel free to speak to one of our expert property team on 01624 665522 or email us: email@example.com or fill in our online enquiry form.