Gazumped,gazundered and traumatised

City Living: A vendor can sell to somebody else after taking your deposit - and it's legal. Edel Morgan reports.

Have you ever been gazumped or gazundered? Both can be traumatic experiences which arise from a lack of regulation governing property transactions.

Sinead Kelly contacted City Living about her recent experience of being gazumped. Her offer of €512,500 for a house in Marino, Dublin 3, was accepted and she paid a deposit of €6,000 to Property Team Noel Kelly Auctioneers. Several days later she was informed the vendor had accepted a higher offer of €518,000.

Her own property was sale agreed but she maintains she made it clear to the estate agent that, if necessary, she would get bridging finance or a loan from her father if the vendor wanted to finalise the sale immediately.

When contacted, auctioneer Noel Kelly said he was bound to inform the vendor of the higher offer.

"My job is to achieve the best price for the vendor. I feel very sorry for Sinead but I have to abide by my client's instruction. It is an unfortunate situation. In conveyancing, unless the contract is signed by the vendor and the purchaser, it is not legally binding."

The Consumers' Association chief executive Dermott Jewell describes gazumping as a low level of trading "which simply should not exist in a fair society purporting to be operated by professionals. No professional should be supportive in any way of its survival. Yet we do not see the operators of the system make any attempt to improve the profession by refusing outright to continue a sale where someone has already paid a deposit to seal the agreement.

"Does the answer lie in ethical behaviour or profit-making in a market economy? Right now profit is the clear winner."

According to Jewell, one solution could be the introduction of an agreement which requires the signature of the vendor at the moment the deposit is paid and which is binding in law.

"In the absence of such a binding document an alternative could be a term inserted into the deposit agreement that, if the seller has a change of heart before contracts are signed, there will be an automatic penalty of between 15 per cent and 50 per cent of the deposit demanded at the time plus interest at the official rate."

A spokesperson for the IPAV acknowledged there needs to be a change "and the IPAV has long said that. There is far too much time between the handing over of a deposit and the signing of the contract. It's hard to know who is to blame; sometimes lawyers are too busy, sometimes documents are not available and many queries are raised and have to be replied to. But as the law stands, the auctioneer is honour bound to report a higher offer even after a deposit has been paid over. That is not often understood by the punter out there. Auctioneers detest such situations and have full sympathy for the original purchaser. It is something the powers-that-be need to act on but have not to date," said the spokesperson.

Aidan O'Hogan, president of the IAVI, called Sinead Kelly's predicament "an unfortunate situation and is a matter for the vendor of the property more than the estate agent".

He says the deposit is a booking deposit which binds neither party legally "and until they are legally bound, either party is legally free to do whatever they want. The institute policy is that properties are not actively marketed once they are sale agreed but that is not to say that, if an offer is received or a potential purchaser insists on being shown the property, the agent can refuse to do so without the authority of the client.

"So if a new potential purchaser comes along forcibly, their action inevitably involves gazumping, a distressing and undesirable practice which is facilitated by the rather complex and slow moving nature of our legal system."

O'Hogan says gazumping is not a practice the IAVI encourages, but it is legal.

"The other side of the coin, of course, is that potential purchasers can and often do walk away from agreements to buy before they sign the contract with impunity and are entitled to their deposit back.

"Insofar as the vendor's position is involved, no vendor really wants to get involved in any contract which might run into difficulty and a bridging loan from a relative may suggest difficulties if, for some reason, the proposed purchaser's own sale ran into delays. It is all a matter of confidence and risk."

There you have it. Both the IPAV and IAVI say gazumping is an undesirable practice which can put the auctioneer in an impossible situation and is distressing for the buyer. Both say they would welcome the introduction of legislation that would stamp out gazumping. So why has it taken so long for the situation to be addressed?

Gazundering is the other side of the coin - a phenomenon which affects the vendor. This is where the buyer waits until everyone is poised to exchange contracts and then lowers their offer on the property. If the seller refuses, they are faced with the prospect of having to go back to square one with the sale.

Gazundering usually happens in a buyers' market.