Whilst Gazumping sounds like a word used to describe the practice of siphoning petrol from someone else’s car, the term is thought to comes from the Yiddish word gazumph, meaning to swindle or extort; in property terms, being ‘gazumped’ it means that you will be refused a sale agreement for a property at the last minute, due to a more attractive offering being made to the owner by a separate party.

This can often happen in the last few stages of a deal, literally as you are about to sign the documents and formalise an agreement – according to figures from the National Association of Estate Agents published in 2002, one in three agreed sales does not make it to exchange of contracts.

This is incredibly frustrating and typically happens when there is an overall drop in house price – estate agents employed on a commission basis will want to take advantage of the biggest offer going, and so it is in their interests to find them best deal for them, and not for you.

However there are, a number of steps you can take in order to strengthen your position when it comes to buying and potentially avoid becoming a gazumpee. Read on…

1. Attain a mortgage in principal

A mortgage in principal is a conditional offer made by a mortgage lender that, provided the information you give them is correct, they will ‘in principal’ give you the loan you have discussed with them. Getting a mortgage in principal demonstrates that you are financially secure, and immediately gives you a large sum of virtual cash to play with when it comes to making a bid for your chosen home.

You should probably apply for one even before you even start looking for a house, as it will give you a serious edge over the competition. Having one also means that you should be able to get the actual mortgage quicker when the race to buy your chosen home begins.

2. Request that the estate agent take the property off the market

If the estate agent knows you are ready to buy, you have a mortgage in principal and that you are serious about buying, then they should be happy to remove the property from their listings – this reduces the chances of other buyers seeing the house and then making a rival bid for it. If an agent agrees to take the property off the market, request for confirmation in writing as proof that they have done so.

Whilst having the house taken off the market will significantly reduce the chances of others seeing it, it does not completely eliminate the risk of gazumping.

3. Get a lock in/lock out agreement

After you have successfully requested that the house be removed from the marketplace, you might be able to apply for a lock in agreement – this is also often referred to as a lock out agreement, a preliminary agreement or an exclusivity agreement.

Lock in/lock out agreements are called so because they lock both parties into a committed sale which they will have to make – a deposit is usually required by both the buyer and the seller of the property by way of compensation should either side pull out at the last minute. This way, if you do end up getting gazumped after a lock in deal has been signed, you will then be able to claim the full amount of the deposit back.

Lock in agreements are quite uncommon and are generally expensive; deposits can be anything from just 2% of the value of the property to anything above this. However, they do often provide peace of mind to buyers and are often as good as signing on the dotted line itself.

Preliminary agreements such as lock ins usually last for a period of say, 10 days – they should start from when you receive the contract of the lock in, not from when the offer is accepted. In the time period of the agreement, all the relevant paper work should be sent to you. Part of the lock in could include a guarantee that the papers will arrive within the time period allotted.

This entry was posted on Monday, March 24th, 2008 at 11:31 am and is filed under Housing Market, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.