Gazumping is a term that strikes fear into the hearts of homebuyers across the globe, the heartbreak of having your dreams and aspirations snatched away as that perfect home is lost just as you are about to put pen to paper.
What is Gazumping?
Gazumping occurs when a buyer has made a verbal agreement with the seller of a house to purchase that property at a given price. However, in the intervening period between the verbal agreement being reached and a sale agreement being signed and deposited upon (the point at which the offer’s acceptance becomes legally binding) the seller receives a higher offer from another would-be purchaser and accepts that instead. The original buyer, who thought he had a deal, has been gazumped.
Gazumping raises ethical questions for the seller of whether he, having given his word to the initial buyer to sell, should honour that word. On the other hand, this is not a popularity contest for the seller and he would have gone to market justly seeking the best deal for his property.
Dawn Glaisher of Sea Jade Investments in Tobago, says the buying process has two distinct phases.
“First, there is the verbal or written offer to purchase followed by the verbal or written acceptance of offer. This is a necessary stage in the buying process but cannot be seen as a commitment either to buy or sell.”
“Second, having made an offer that has been accepted by the seller, a verbal agreement can then be reached that is usually meaningful, and gives the agent time to draw up a sale agreement and have it signed by both parties and deposited upon.”
“The speed with which this agreement is signed and some consideration is paid is crucial to minimise the possibilities of another offer being received in the interim. The sell does have the right to sell to the highest bidder, and most properties are offered on a non-exclusive basis which means that the seller is fielding competitive offers from a number of agent.”
“There are definitely people of integrity who shake hands on a deal and stick with it, but to be safe, signing and depositing must be seen as the point at which a binding contract has been made. An offer to purchase and an acceptance of offer are just that; they are not binding on either part in our legal system.”
Mitigating the Problem
The issue of gazumping, and the mitigation of it, often comes down to the length of time lost between the acceptance of the verbal offer and the signing of the sale agreement. The more this danger area can be reduced the less time is available for other offers to be put forward.
It is a particular problem in England where this hiatus period can last for anything up to ten to twelve weeks. Fortunately, the conveyancing system is different in Trinidad and Tobago. Even so, there are measures which can be implemented to decrease this threat still further, as Vice President of AREA, Patricia Lazzari explains.
“To speed up the process AREA-registered agents have a standard sale agreement which we have had drawn up by our attorneys. We can download this directly from our system.
“On average it’s signed within one-to-two days of the verbal offer being accepted. But the process of offer being mad, sale agreement drawn up and 10% deposit being secured on behalf of the vendor by the agent, can actually be processed within the same day.”
“The only way the deal can be broker after that is if the vendor’s title is bad or if the purchaser fails to complete by the completion date, in which case the deposit will be forfeited.”
Mrs. Lazzari says there is another course of action open to the buyer if a delay of any nature is anticipated.
“If you foresee that the sale agreement will take some time to prepare or simply want peace of mind you should get a written Letter of Offer signed by both the buyer and seller. Signed by both parties, agreeing to the terms, it’s as good as a sale agreement.”
Issues may arise when there is a number of agent charged with selling the property, as is normally the case in Trinidad and Tobago.
“A lot more control can be exercised where an exclusive listing has been awarded by the seller to a selected agent and where all offers to purchase must be channelled through that single agent,” says Dawn Glaisher.
“From AREA’s point of view, this is the more desirable situation because it is more formal; it ensures greater accuracy in the listing and provides a better service to the seller. However, not all sellers see this as serving their best interests and most insist on listing with a number of agents.”
Obviously the more agents involved the greater the chance of a competing offer being put forward, even when another one has already been verbally accepted, as Mrs. Lazzari explains.
“Unfortunately there are some unscrupulous agents who, even though a seller may call and tell them they’ve accepted an offer, might say ‘Have you signed a sales agreement yet because, if not, I could still get you a higher price.’
“A lot of this then comes down to the character of the seller. Let’s face it though, if someone tells him he can get an extra TT$10,000 for his property, and nothing is signed, it’s going to be tempting.”
Although gazumping is not a big problem in Trinidad and Tobago it is nevertheless still a very real possibility. It is often a greater possibility when dealing with desirable, high-end properties which are more likely to instigate a bidding contest.
The advice is, when making your offer, to be prepared to progress with everything as swiftly as possible. In particular, have your finances in place so that you can move forward as soon as you make the decision to buy.
“The more time that is available after you offer has been accepted the more opportunity there is for another offer to be made,” adds Mrs. Lazzari.
“There really is no way around it, just get your sale agreement signed quickly.”