Brits: getting "gazumped"?

I’m quite sure I’ve spelled “gazumped” wrong, but that’s how it sounds. This weekend, a friend told me that in England, after someone makes an offer on a house, and that offer is accepted, a third party can come in and “gazump” the offer. The third party can offer more money, and despite the fact that the contract has been formed, it apparently isn’t binding and the “gazumper” gets the house.

Anyone ever hear of this? It can’t be right, can it?

IANAL, but I think the practice has something to do with the idea that oral contracts are not good enough for transactions involving real property (ie freehold, leases). You need writing and certain formalities to form a valid contract for land.

Yes, it’s true that between the agreement of a sale price and the exchange of written contracts, the vendor can change their mind, for whatever reason. The gap is caused by the need for the buyer to have a survey done, and various legal stuff.

Campion, the UK land conveyancing practice is, to anyone who comes from a place with a halfway decent system, utterly and totally bizarre. It is not as a result of any particular law, but rather as a result of standard practices that are simply jaw droppingly dumbass.

When I first started living the UK some UK lawyer friends explained to me how their system worked and I just couldn’t believe my ears. At first I thought there must be some law that meant a sensible practice was not possible. Not so: when I explained how the Australian conveyancing practice worked, my UK lawyer friends blinked a lot, stammered, tried hard to avoid admitting that us bloody colonials could do something better than they, but in the end had to admit that there was nothing under UK law that would stop them using a more sensible system other than ancient wheel ruts eroded so deep by habit that no one could turn out of them.

There are a number of wacky aspects to the UK system but at the heart of it is this: in the dim and distant past there was a problem with the landed gentry being deprived of their land in (allegedly) fraudulent oral deals. As a consequnce, the Statute of Frauds was passed, by which dealings in land were null and void unless in writing under hand. We inherited the same statute here in Australia.

In standard UK conveyancing practice the vendor and purchaser reach full agreement on all important terms including price, then the usual due diligence and financial arrangements prudent and necessary when buying property are undertaken, and only then at a very late stage do the parties actually (in UK conveyancing parlance) “exchange contracts” (ie sign up in writing). At any time up to that point, either party can just pull out with impunity because of the Statute of Frauds.

If the vendor gets a better offer the purchaser gets “gazumped”, leaving them with no recourse despite having potentially invested large amounts of time, emotion and money on the strength of the vendor’s “agreement”.

So in other words a statute that was designed to avoid fraud is now used to allow deliberate and calculated wholesale reneging on oral agreements.

It’d be funny if it wasn’t so sad.

Part of the reason that the deal does not become binding until such a late stage is that many of the financial arrangements are made between offer and exchange; indeed many of these arrangements are difficult to do any other time;
-In order to exchange, you need sufficient funds - usually a mortgage
-In order to get the mortgage, the lender will usually want the property officially valued/surveyed (the borrower/buyer may already have an offer from the lender, but it means nothing much until it is applied to the potential purchase of a real property)
-In order to get the mortgage, the lives of the borrowers must be insured (to a value that would clear the mortgage, which is dependent on the value of the property, etc.

So, odd as it might seem, for most people, the ability to make a binding offer on a property is not something they can do anything other than work up towards once a suitable property has been found.

Now of course there are other ways around most of these complications, but not, I think, without a radical redesign of the system.

These complications are of course common in the US, Australia etc. But only the UK system finds them sufficient reason to make the whole process a total bollocks up.

According to Wikipedia, just checking on title in the UK takes 10-12 weeks.

In Queensland, a standard conveyance of a domestic property takes 3 weeks from the day you make a successful offer to the day you are entered on the title as the owner and have the keys in your hand. Checking on title takes perhaps 2 minutes, on-line. 30 seconds if you type fast.

Sure, but who is going to change it? Home buyers won’t, because although painful, the process is (kind of)a one-off for them; if they had to do it over and over every couple of months, they would rise up and smash the system*. The lenders and estate agents aren’t going to change it, because they can charge for the service of guiding the hapless buyer through the whole process.

*Actually, it’s the same with the application form for a UK passport; it’s horrible; the only reason people don’t pick up pitchforks and burning faggots over it is that they typically only have to endure it once every ten years.

Yes, well that’s a different question. Those wheel ruts are pretty deep.

Just to point out that this is not always necessary - I think the rules have changed in the past few years. I do not require life insurance for the mortgage I took out last week, though I’m getting it anyway just in case, since I don’t want my wife to be out on her ear should I get hit by a blimp.

There’s also “gazundering”, whereby a vendor can verbally accept an offer, but then gets another that is lower, but the new bidder has a more solid financial position: e.g. has cash for the property, rather than a pending mortgage. This happened to me a couple of months ago.

Even more irritatingly, this practice might also be carried out after one has paid for a survey - £650 in my case.

The whole system sucks donkey balls.

That pretty much sums it up; yes, there are much better ways to do it, but how do we get there from here? (and who is going to organise the change?)

And to be fair plenty of people each year are gazumped in Australia and often it is the greed of the agent rather than the vendor that contributes to it.

The conveyancing process on my house took 6 weeks. I’m sure it’s possible to improve on this.

I thought this only applied to England and Wales (and possibly Northern Ireland). The property laws in Scotland are different there. Once you make an offer it’s a binding contract.

As this explains

In Australia (NSW at least) even the exchange of contracts is not binding until 5pm 5 days later as Fair Trading explains.

Having googled a bit, it seems that NSW conveyancing practice might not be that much better than the UK.

In Queensland, contracts are signed immediately that an offer is accepted. Usually the same day, rain hail or shine.

After this signing of contracts has taken place, if the purchaser is then refused financing for the purchase (mortgage companies wont touch him etc etc) what happens? Is there any penalty of the purchaser reneges on the terms of the contract as signed?

In the US, the way we generally deal with those is the mortgage contingency in the sale contract.

With regional variations, in most of the US, buyers and sellers will enter into an contract to sell, often prepared by the brokers based on a standard form contract, with a small contract deposit.

The contract will provide that the Buyer is required to promptly apply for mortgage financing in a specified amount. If the Buyer cannot get a lender’s commitment letter that the lender will issue a mortgage in that amount by a particular date, the Buyer can terminate the contract. Once the lender issues the committment, the contract is unconditional, and both sides are obligated to go forward with the closing of the sale. (Obviously, there are issues of state law and local practice addressing the details of this process.)

Typically in downstate New York, you can get a full title report in about a week, an appraisal can take about a week, and depending on the bank and borrower, approval in a week or less. In extreme cases, you can go from initial deal to closing in just a couple of weeks (less if there is no lender), but more commonly it is a month or two.

No, the contract would be subject to finance.

Or, on reading Billdo’s post, what he said.

Until fairly recently I reckoned the English and Wales rules were dumb

Heck, getting a ‘search’ on a house is a mechanical thing

  • yet it cost me rather more than I thought

Getting a structural survey is more expensive, fortunately my astute friends talked me out of it, in hindsight it is obvious (the surveyor is writing for the person paying his bill, and if he said my place is full of dry rot … I might not sign his cheque)

Now we have ‘Home Buyers Packs’ coming in, they will cost rather a lot, they have to include an ‘Energy Efficiency Survey’ - well I can do that in two minutes

  • the whole thing stinks

Over 20 years ago, I worked out a solution, not complicated

  • it was spurred by my realization that having made an offer, which was accepted, and paid a substantial deposit … I had no legal rights.

Just make ‘structural surveys’ legally transferable, establish options (non refundable but guaranteed purchase) standard and ensure that councils cannot charge for ‘searches’.

Just to fix things, an option to use Scottish Law would cut down the cr*p.

We are governed by morons

  • do they send the dregs of Scotland to England ?

(Actually I reckon that there is a pretty good business to be made from selling 30/60/90 day options on property)