- You are concerned about losing a property for sale after an offer has been agreed
- The competitive housing market is seeing more of a practice called gazumping.
- Gazumping is when a seller withdraws from a sale after more offers than anywhere else.
I’ve heard of people being ‘messed up’ and property lost after their seller withdrew because of a higher offer than anywhere else.
Can a buyer and seller enter into an agreement to recover costs prior to the sale of a property if the other party withdraws? js
Can a seller and buyer enter into an agreement prior to the sale of a property to recoup the cost if the other party backs out? (scroll down for template agreement)
MailOnline property expert Myra Butterworth answers: Competition for properties has been fierce this year.
It follows measures to boost the housing market during the pandemic, including a stamp duty holiday (which ended earlier this month).
But the boom in buying brought out an ugly side of the market, and it is a practice known as ‘gazumping’. This sees the seller withdraw from an agreed sale because of a higher offer from elsewhere, and either take it or ask for more money from the original buyers.
According to research by comparison site Comparthemarket.com, Gazumping was the major reason for property deals not going ahead in the last 12 months.
In Scotland, gazumping is very rare as an agreement becomes binding the moment a written offer is accepted. However, the practice remains legal in England and Wales.
But there is an agreement that both parties can sign to help mitigate the risks of this happening — or at least be able to cover their costs if it does happen.
Stephen Gold, a retired judge and author, explains: Yes, a seller and a buyer can enter into an agreement to cover the cost before the sale of the property if the other withdraws the offer.
Selling and buying unless a property has been sold at auction or two undesirables have struck a deal at a saloon bar (cash handed over and deal specifics written and beer mats signed) shall be made ‘under contract’.
This means that at a later stage, a formal document will be prepared in duplicate, containing the details of the transaction, including the date of completion. Each party will have signed its copy and the two copies will be swapped.
This is what ‘exchange of contracts’ is for. Once this happens both parties are legally committed.
And till then the normalcy is that either party can walk out without paying the other a fresh pence of compensation or offering a single lie to excuse his action.
White-collar fraudsters have a more acrimonious practice in domestic deals than in open prison.
Sellers can negotiate secretly with many other potential buyers and buyers can negotiate secretly with many other potential sellers.
Of course, initially committing themselves legally is likely to be a problem for both parties.
The sale would probably be dependent on the purchase of another asset, which would require two transactions.
For the buyer, they may need to reconcile their sale and, anyway, chances are they will have to fix a mortgage offer.
A survey on the property or some inspection report from a surveyor through the mortgage lender or privately (or both) just to make sure the property isn’t sinking by the day or there is a case to sue someone if the surveyor is caught in the eye. But the bandage was tied.
Checks will also be important to make sure there are no public toilets or fish and chip shops next door opening any time soon.
It is inevitable that the ‘exchange of contracts’ will cost both parties before – and, no, I didn’t forget the charges of the convening solicitor or the licensed carrier.
A lock-out agreement is a way of discouraging ‘gazumping’ or ‘gazundering’ (reducing an offer) and for each party to protect the other from lying or bad faith causing them financial loss: A small binding agreement next, hopefully, a larger binding agreement.
For a specific period—maybe six weeks but it could be longer or shorter—the seller agrees not to market the property or negotiate with anyone else and paperwork.
Buyer, for its part, agrees to use its best efforts to obtain its mortgage and instruct its carrier. If both parties withdraw prematurely or fail to ‘exchange contracts’ in time, they will have to compensate the other party for the money they spent.
They are its bare bones. I wrote an agreement along these lines in my book (scroll down to see that agreement).
Paragraphs in the template can be mixed and matched. It can also be varied to cover each party paying more than the deposit amount, which can be any percentage of the purchase price.
Payment by each party will be made by a third party. If one party leaves the agreement or breaks the agreement, the other party shall be entitled to receive the full amount held by the third party.
A teen-weenie faced with the suggestion of a lock-out agreement will more than likely say ‘on your bike’ and the seller’s property agent will say ‘you’re kidding’.
Or that ‘this property is highly desirable and I have someone on the phone right now who is willing to pay you five more and exchange contracts tomorrow’.
It’s worth a try, if only to see how furious the seller gets and how much blood runs down their face at the suggestion. Then you can make your own guess about whether they can be trusted.
But there is an alternative to a lock-out agreement that is more likely to be suitable, for example, the seller must move, has yet to get another property, but wants to know that he or she has a chance of being close for sale. Good chance it’s in the bag. Or where…