Deal or no deal: return of the gazump
Currently there is nothing legally wrong with the practice but calls are being made for some financial penalty for anyone who breaks a ‘sale agreed’ commitment
You’ve been looking for a house for a year. You’ve been out-bid three times. Prices are rising and you fear if you don’t move now you’ll be priced out of where you want to live. The house you have been bidding on just went sale agreed, and now you regret dropping out too early. Should you throw all your cards on the table and make one last bid over and above the sale agreed price? Or do you walk away and start the whole process all over again?
Therein lies the dilemma of gazumping. It’s not illegal, but is it ethical? And what about the vendor – should they accept a higher bid even if they have already agreed to sell to someone else? Would you?
“Let’s be very honest about it. What vendor out there will turn away a higher offer on their property even though they have accepted another offer from another party and even after a booking deposit is paid to the agent? I suspect the answer is no one would and indeed my experience in the market is that few if any ever has,” says one seasoned estate agent.
Technically, you’ve been gazumped if you have gone sale agreed on a property, “subject to contract”, paid your deposit, only to find that the vendor has turned around and agreed to sell it to someone else – for more money. Conversely gazundering, which became popular in the years following the crash, is when buyers bid up on properties, go sale agreed, but before any contracts were signed, they negotiate the price downwards, much to the dismay of vendors.
Legally, there is nothing wrong with gazumping (or gazundering for that matter), as no contract exists in property until both seller and buyer sign the contract.
As the Dublin-based estate agent puts it, “gazumping is a market reaction especially prevalent when a market is on the up, in recovery, where demand outstrips supply in locations where there is just such a pent-up demand”. Just like parts of Dublin right now.
One putative purchaser placed a bid on a house in Phibsboro on Dublin’s northside last July. Zoned as residential above floor and commercial on the ground floor, he had plans to convert it into a series of one-storey apartments.
He went “sale agreed” at below €200,000, only to later hear that the vendor had found another bidder and wanted to pull out.
Three weeks later, the estate agent called to say that the deal had fallen through and would he go ahead again. So, frustrated by the vendor’s actions but still keen to get the property, he lowered his bid by €10,000, paid his deposit, notified his solicitor and went sale agreed again.
Not long after, however, he got a call again. The vendor was pulling the property, and was going to sell it at auction instead.
In the end the vendor got 30 per cent more by his – some would argue unethical – actions, and the buyer was left disappointed. He still hasn’t found a property and feels he was being used by the vendor as an “option”. After all, it doesn’t cost the vendor anything to keep a buyer dangling before the contracts are signed, and if he or she can get a better offer they can opt for that – if they don’t, they can instead exercise that option, and complete the original transaction.
Not a fan of the practice
In another example, a vendor had agreed to sell his property, but was delayed in purchasing another property to move into. So he didn’t sign contracts and kept the buyers on the hook for about four months, during which time prices had risen. In the end, he opted to pull out of the deal, put the house back on the market, and sold for a higher price.
For reasons such as this, Karen Mulvaney, of The Buyer’s Agent, which represents buyers, is not a fan of the practice.
“All you can really do is rant and rave. You can’t even report an agent for gazumping, because it’s not against the rules. It’s an absolute disgrace and it should not be allowed. It’s very, very unfair on a buyer”.
Indeed if it does happen to you, you’re likely to first take issue with the person who you thought had sold you the house – the estate agent. However, agents defend the practice on the basis that they are required to act in the best interest of their clients – which translates to passing on all bids they receive to them.
The Property Services Regulatory Authority (PSRA) has produced a code of practice for estate agents, but it doesn’t mention gazumping, and the authority says that it has “has no function” in relation to it. It does however, say that “a property services provider shall report all offers to clients”. It also says that estate agents must “promptly and without undue delay inform clients, or their representatives, of any offer made on the property”.
Mortgage broker with Irish Mortgage Corporation Karl Deeter argues that it’s an ethical issue.
But could there be a solution to the practice? Mulvaney would like the PSRA to take a stance on it by outlawing the practice or by formalising the sale agreed process.
This would mean that once you pay your deposit it secures the agreement to sell on the one hand, and an agreement to buy on the other, for a specified period of time until the contracts are executed.
Deeter argues that because there is no cost to keeping a potential buyer on the hook, there is no penalty for negative behaviour.
“If you don’t punish bad behaviour, it gets a free pass and it happens more,” he says, suggesting that there could be some sort of financial penalty imposed on those who break a “sale agreed” commitment.
For now however, the best advice appears to be to get your contracts signed as quickly as possible if you are keen to complete the transaction.
And, while it is important not to overstate the prevalence of gazumping – it is after all impossible to know how often it actually happens – it is an unfortunate side effect of a reviving property market, at least in urban areas.
“It’s greed at the end of the day. Greed is creeping back in to the market,” says Mulvaney.