Property Investor Today | 16 August 2019

Instances of gazumping have been few and far between in Central London for the past five years.

However, a shortage of housing stock in the Prime Central London market and the emergence of more competitive prices has ignited a very real trend for gazumping.

This is something that our team at INHOUS has experienced first-hand in the past few months, particularly across the Prime Central London Market.

What is gazumping and is it legal?

Gazumping occurs when a buyer has had an offer to purchase a property accepted by the seller, but before the sale is exchanged the seller accepts a better offer from another buyer.

As unjust as it may feel when you’re on the receiving end, the truth is that gazumping is a perfectly legal aspect of the property-buying process in England and Wales.

The reason for this is that an agreement to buy or sell a property doesn’t become legally binding until written contracts are exchanged which can come several weeks after an offer has been accepted.

Strictly speaking, a buyer can be gazumped if the seller decides to reject their offer in favour of another buyer’s for any reason, such as delays in conveyancing or financial arrangements, not simply for a higher bid.

What is causing a rise in gazumping?

The key factors leading to an increase in gazumping are:

  1. A shortage of housing stock in Prime Central London
  2. Fewer transactions taking place in the Super Prime Central London market and at more realistic prices – still strong – but not overvalued as has been the case in recent years
  3. People are now starting to seriously consider buying property again. A lot of people want to buy/sell property before the UK is due to leave the EU later this year
  4. Agents are currently under incredible pressure as there are so few properties on the market, leading to the overvaluing of property by 15 to 20%. This makes it very hard for a vendor to accept an offer than comes in at market value as they have frequently been misled by their agent
  5. The readjustment in prices, limited stock and a desire to purchase property again is fuelling a rise in gazumping.

Our advice to investors and property buyers is to compile a substantially written argument when submitting an offer on a property, instead of a verbal offer.

The written offer should include proof of funds and be written up by solicitors or with a financial broker’s details to verify that the offer is reliable.

Building a reliable case makes it very hard for vendors not to take an offer seriously so we advise buyers to prepare comparable evidence for their agent to share in full.

We also strongly suggest offering a quick exchange period, preferably five working days. A speedy transaction is exactly what the vendor is looking for so having all the facts in one place is extremely attractive and much harder to turn down.

Recent cases of gazumping

Case Study 1 – Terraced house in the heart of old Chelsea

  • INHOUS gazumped another buyer in November 2018.
  • This property was on the market for 10 months without any interested buyers for a guide price £1 million above its final purchase price.
  • Once the property was re-introduced at a realistic level it quickly had two competing bids.
  • INHOUS offered a strong five working day exchange in order to secure the property (the standard is 14 days).
  • As INHOUS was working as a search agent on behalf of a client, our offer was favoured. INHOUS put forward a strong offer combined with a good central London solicitor, proof of funds and the ability to turnaround the exchange in five days.

Case Study 2 – Five-bedroom property in the heart of Chelsea

  • INHOUS gazumped another buyer in January 2019.
  • This property was on the market for over a year and the price was then brought down to a realistic level. It then went on the market with two agents.
  • The property was under offer just shy of the asking price but not exclusively. INHOUS was able to gain access through strong agency contacts and the ability to provide an already interested and vetted buyer.
  • A five working day exchange and cash purchase secured the property through INHOUS for north of £9 million.

Case Study 3 – A mews property in Notting Hill

  • INHOUS has also been on the receiving end of gazumping!
  • INHOUS was gazumped in January 2019 on a property in Notting Hill.
  • The property had been on the market for about a year, the price was then lowered to its true market value.
  • INHOUS secured the property and got it under offer with ease.
  • The day before contracts were exchanged, another buyer swooped in and gazumped INHOUS. This new buyer offered a 24-hour exchange as well as completion, as well as offering a significantly higher price.
  • A 2- hour exchange and completion is unheard of – this shows a highly competitive market. The standard period for exchange is 14 days, even a five-day exchange is very strong.

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FEES FOR TENANTS

Tenancy charges may vary, depending on the agreement we have with you, so it’s best to ask the INHOUS lettings department.

Permitted Charges in accordance with the Tenant Fee Act 2019

The following payments may apply when entering an Assured Shorthold Tenancy:

First month’s rent In advance
Tenancy Deposit 5 weeks, or 6 weeks if annual rent is over £50,000
Holding Deposit One week’s rent, put towards your first rent due
Early termination when requested by the tenant A charge not exceeding the financial loss experienced by the landlord
Default charge for late payment of rent A maximum of 3% above Bank of England base rate, charged when rent is more than 14 days late
Default charge for replacement of lost key or security device Equivalent to cost incurred
Changing the tenancy documents after the commencement of the tenancy, including change of sharer £50 incl. VAT

The following payments may apply when entering a Non-Housing Act Tenancy:

A Non-Housing Act Tenancy is formed when the annual rent exceeds £100,000 or the property is occupied by a Company rather that an individual.

  Inclusive of VAT
Tenancy Setup Fee drafting and execution of tenancy agreement if supplied by us, collecting and holding the Security Deposit as Stakeholder, issuing protection certificates, if applicable, Open Banking type referencing of tenant and initial Right to Rent Checks £360
Check-in Fee checking into the property and reviewing inventory minimum of £130
Tenancy Continuation negotiating and drafting an extension £150
Change of Sharer – Deed of Assignment £120
Early Termination – Deed of Surrender £120
Guarantor Referencing Fee (each): £30
Deed of Guarantee Fee: £50
Late payment of rent 3% above the Bank of England base rate

 

How to Rent Guides:

This guide is for tenants and landlords in the private rented sector to help them understand their rights and responsibilities. This guide includes a checklist and further detail on each stage of the rental process.

How to rent – GOV.UK (www.gov.uk)

FEES FOR LANDLORDS

Tenancy charges may vary, depending on the agreement we have with you, so it’s best to ask the INHOUS lettings department for a full breakdown of costs. Here’s a list of what you can typically expect to pay:

Lettings Service Only: 10%+VAT (12% inc. VAT) – Including rent collection
Letting and Management Service: 16%+VAT (19.2% inc. VAT)
Short Let (less than 6 months): 24%+VAT (28.8% inc. VAT)
Lettings Renewals Service: 8%+VAT (9.6% inc. VAT)
Lettings and Management Renewal: 14%+VAT (16.8% inc. VAT)
Short Let Renewal (less than 6 months): 24%+VAT (28.8% inc. VAT)

Pre-Tenancy

Additional non-optional fees and charges

We will not be charging clients fees for referencing, tenancy agreements or deposit registration.

The costs of a clean, EPC, gas safety, EICR, PAT and inventory are set by third party suppliers and prices may vary. The below schedule is to give you an idea of what you would typically pay.

All fees stated are inclusive of VAT (calculated at 20%):

During the tenancy (if required

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We are also a member of a redress scheme provided by The Property Ombudsman www.tpos.co.uk.

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