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It is every buyer’s nightmare. You find your dream home, have an offer accepted, commission a survey and secure a mortgage. The day before exchange of contracts, the news arrives: you’ve lost out to a higher bidder.
Gazumping, as this murky practice is known, has a long and inglorious history in the property markets of England and Wales (it is far less likely under the rules of the Scottish process).
Apart from the financial costs — the pointless survey and the wasted lawyer’s fees — the emotional stress is considerable, particularly where buyers are part of a chain and have lined up the simultaneous sale of their home.
As a result, many have welcomed news this week that the government is starting a consultation on ways to frustrate gazumping.
There is one problem. We have been here before — and experience would suggest there is no solution to the blight of gazumping that does not create unwelcome costs and consequences.
It is certainly a problem though its scale is hard to gauge. Incidences of gazumping tend to be higher in hot markets: when 15 people are chasing a property it is more likely one will try to outbid another even after an initial agreement. Conversely, sluggish markets (as we have now in many parts of the country) raise the chances of gazundering, where buyers reduce their offer at an unconscionably late stage.
The government’s own figures downplay gazumping. Its consultation document admits that “the actual incidence of this seems to be low”. Only 1 per cent of sellers whose transactions failed said they had taken a higher offer from another buyer.
But data produced by TwentyCi, a consultancy, suggest otherwise. The study looked at the proportion of transactions where the property eventually sold for a higher price than had been initially agreed. As a proxy measure for gazumping, it is not perfect, but so far in 2017, 12 per cent of transactions in England and Wales fell into this category. The rate is higher in London, at 14.6 per cent.
So what can be done? One proposal aired in the consultation is to do more to promote the virtues of “lock-out” or “lock-in” agreements, where a buyer and seller agree to pay a penalty if they break an initial agreement to transact.
These have been available for years as an option, yet are seldom taken up. Estate agents are probably right when they ascribe this to the lopsided incentives in different markets: when prices are rising fast, a seller has less incentive to sign one. In a cool climate, buyers may want extra room for manoeuvre.
So is the Scottish system the answer? There, buyer and seller make a commitment at an early stage, in a market where lawyers, rather than estate agents, have the whip hand. Sellers in Scotland are also obliged to market the property with a report including a survey, energy rating and other information, raising their costs but speeding the process for potential buyers.
This reduces the opportunity for skulduggery but it has been considered before as a replacement for England and Wales and found wanting, on the grounds that the safeguards it demands are ill-suited to the larger and more liquid market south of the border.
It curbs the opportunistic purchaser, such as the couple who have always coveted a particular house, see the estate agents’ sign going up and seize their chance without having first put their home on the market. “Leaping in” is harder to do.
Elements of it have also been tried before. The last Labour government brought in home information packs, but in practice many buyers distrusted information produced by the vendor. When the coalition government arrived in 2010, it scrapped the measure believing it was “gumming up” the market.
Another way of tackling gazumping is to shrink the time between an initial offer and exchange of contracts. The barrier here is the more arcane aspects of conveyancing, with paper documentation and little transparency. Is the delay at the solicitors? Has the seller got cold feet? It isn’t always easy to find out.
Anyone surmising that technology is the answer should look at history. The graveyard of attempts at electronic conveyancing includes a Land Registry effort dumped in 2011 after worries over costs and security, and, an industry-led approach called Veyo, abandoned seven months after launch in 2015.
Costs are undoubtedly a factor but never underestimate the attractions of opacity. Drawing a veil over a failed or disputed sale can be useful to those anticipating a second attempt down the line, something a transparent system would make harder.
Readers can make their voices heard as part of the consultation — but we should be realistic about the prospects of securing an end to gazumping: Whitehall is hardly short of work these days.
James Pickford is deputy editor of FT Money. Email: firstname.lastname@example.org Twitter: @jamespickford2