The ‘G’ word is one of the dirtiest words related to property sales. It blights the reputation of estate agents, puts fear into the hearts of property buyers and causes a whole heap of additional headaches to solicitors north of Hadrian’s Wall.
This article will address some fundamental misunderstandings that exist amongst the majority of property buyers and sellers in Scotland. It will show you how gazumping actually happens, what you can do as a property buyer to try and prevent it, and how all of this can negatively affect you as a property seller who just wants to get the best possible price for your property.
Some of the points here relate to differences between the rules that affect solicitors who are estate agents and traditional, non-law firm estate agents. These rules affect the way that a solicitor/estate agent can negotiate on a seller’s behalf when the seller has already verbally accepted an offer on a property. Why am I making this distinction?
In Edinburgh and Aberdeen, in particular, properties are marketed and sold predominantly by solicitor/estate agents (e.g. members of the ESPC or Edinburgh Solicitors’ Property Centre) rather than by non-solicitor estate agents (e.g. Foxtons or Countrywide). Indeed, property throughout Scotland has traditionally been marketed and sold by solicitor firms and, even in areas such as Glasgow where non-solicitor estate agents have made huge inroads, solicitor/estate agents still have a significant percentage of the market. This means that these Law Society guidelines, which many property sellers find surprising or counter-intuitive, affect the vast majority of property sellers in certain areas of Scotland and a good number of property sellers in other areas. So it’s important that you know about them!
This isn’t an an anti-law firm diatribe: quite the opposite, I own a law firm! I believe that selling your property through a regulated professional has many significant benefits, particularly relating to ethics, as long as they are actually good at marketing properties and not just doing it as a sideline. However, what I’m about to explain below is not widely known or understood (even by some of my esteemed fellow-professionals!). The intention here is to help you as a property buyer or seller in Scotland to be better informed about what is likely to happen to you during the process. On with the show. What is gazumping?
Gazumping – What Is It?
Let’s take an example: a property seller verbally accepts an offer from Buyer Number One then, later, changes their mind and sells the property to Buyer Number Two, usually because Buyer Number Two has offered to pay a higher price.
The perception is that estate agents are the bad guys here, going back to buyers and telling them, just before they are due to move into their new home, that further buyers are lined up all of whom are prepared to pay more for the property. This forces the buyer into having to either withdraw at the last minute or to just stump up the extra cash. Why would they do this? The perception is that it’s because they are seeking to increase their commission fees which are usually a percentage of the final sale price. In all my experience, this isn’t really the case, as I’ll explain later. The perception remains however that after a buyer’s offer is accepted, the greedy estate agent rubs their hands gleefully and hawks the property around to further potential buyers, trying to get a higher price for their clients.
Gazumping is more likely to be a problem in a ‘hot’ or rising property market, or in very popular residential areas, where demand is high and the number of buyers outweighs the number of properties available. It has therefore become slightly less problematic in the past three or four years.
What might surprise you as a property buyer is that gaumping does indeed exist in Scotland: many people think it’s only an English problem.
The fundamental point which seems to be lost in the anti-gazumping debate, often by solicitors themselves, is this, whether we are a solicitor/estate agency firm or a regular estate agency firm: we have to take our client’s instructions and then act on those instructions AND we have to act in the best interests of our client, not ourselves.
Why Can Gazumping Take Place? Surely the Buyer’s Offer Was Accepted?
Gazumping is possible because the sale is not legally binding until the exchange of contracts (in England and Wales) or the conclusion of missives (in Scotland). At this point a contract of sale/purchase exists. Prior to the contract being concluded however, the seller and their estate agent, on the buyer’s behalf, can do what they want.
The period between verbal acceptance of an offer and conclusion of a written contract can last for several weeks. Indeed, in some cases the contract is only concluded on the day that the buyer is due to move in to their new home!
It’s reassuring for property buyers who are buying from a solicitor/estate agent to think that they can’t be gazumped because of Guidelines that prevent solicitors from being involved in a gazumping scenario. However, this isn’t actually the case, as I’ll explain: you can still be gazumped even when you’re buying a property from a solicitor/estate agent who has to follow the Law Society of Scotland’s anti-gazumping guidelines!
The flip side of this also might surprise property sellers. When you use a solicitor/estate agent and want to retain that solicitor for the whole process, you cannot accept a better offer after they have verbally accepted an offer on your behalf. If you DO want to accept a further offer after verbal acceptance, you have to fire you solicitor an appoint another one. This can cost you money and means that you can’t have your originally, carefully-selected solicitor, negotiate your sale price on your behalf.
How Does Gazumping Negatively Affect Property Buyers?
Picture this scenario…
You purchase a house, make all your plans for moving, book the removal van, arrange cancellation of all of your suppliers, buy some new furniture for your new property. Because the buyers of your property are due to move in on Monday, you decide to move temporarily into rented accommodation.
Then, a week before you are due to move in to the new property, you get a phone call from your solicitor telling you that the buyer has decided to sell to someone else unless you are able to match that new buyer’s offer. You aren’t able to match that offer so you have to withdraw from the purchase.
Result? You end up living in temporary accommodation, with the costs of the legal process up to date and any cancellation charges for removals, lost deposits on new furniture etc etc.
Even without this kind of doomsday scenario, the buyer will be hugely disappointed, having mentally moved all of the furniture into the property. They also probably will have the legal costs associated with the purchase transaction to date. And quite possibly the cost of a survey that they carried-out prior to making an offer.
How Does Gazumping Negatively Affect Property Sellers?
To be honest, when they’re using a regular estate agent, it doesn’t really. Apart from a slightly heavy heart or a bad conscience, they end up with an offer that they like better than the original offer. However, when the seller is using a solicitor/estate agent, there ARE consequences, some of which a seller might consider to be negative, in entering into a gazumping scenario…
What Happens if You Instruct Your Solicitor/Estate Agent to Accept an Further Offer?
So, you’ve instructed your solicitor to accept an offer of £200,000 for your property. Congratulations! Then two weeks later, your next door neighbour, whom you were speaking to over the garden fence at the weekend, comes forward and submits an offer to your solicitor/estate agent of £220,000 Congratulations again! Or is it…?
Missives haven’t yet been concluded with Buyer Number One so there is no legally binding contract for the sale of the property. There’s no legal reason then that you can’t accept the second offer. If you are prepared to honour your original pledge to Buyer Number One, you are certainly in the minority of property sellers in my professional experience: £20,000 more is a lot of money!
So, you instruct your solicitor/estate agent to inform Buyer Number One’s solicitor that, regrettably for them, you have accepted another, better offer. And they turn round and tell you that they can’t do this. Eh? Why on earth not? You’re not doing anything illegal after all and you appointed them as your agent to do what you, as the client, ask.
If your estate agent isn’t a solicitor, this scenario doesn’t pose them any problems apart from the uncomfortable conversation with the original buyer. And they can always give the original buyer the option that they can raise their offer by £20,000 and you’ll happily sell to them.
However, your solicitor/estate agent informs you that, if you wish to negotiate on the second offer or if you want to accept that second offer, they’ll have to withdraw from acting for you and instruct you to find another solicitor. Understandably, the property seller is this scenario is probably a little confused an upset. So why does this happen?
The Law Society ‘Gazumping, Gazundering and Closing Dates’ Guidelines.
Solicitors in Scotland are bound to adhere to the rules, regulations and guidelines of the Law Society of Scotland, our governing body and regulator. If we breach these rules, we can be disciplined and, for serious breaches, be prevented from ever practising as a solicitor again. So, although these rules are not actually law, they bind us and affect our behaviour.
As I’ve said, solicitor/estate agents still have a significant percentage of the estate agency market in Scotland and indeed dominate it in certain parts of Scotland. This means that these Law Society rules affect the vast majority of property sellers in certain areas of Scotland and a good number of property sellers in other areas.
In an attempt to prevent gazumping happening in Scotland, the Law Society published anti-gazumping guidelines, an extract of which states:
“Where a solicitor for a seller has intimated verbally or in writing to the solicitors for a prospective purchaser that their client’s offer is acceptable – whether after a closing date or otherwise – the seller’s solicitor should not accept subsequent instructions from the seller to accept an offer from another party unless and until negotiations with the original offeror have fallen through. The solicitor should advise the seller to instruct another solicitor if he wishes to accept the later offer.
This extends the guideline on closing dates to a situation where no closing date has been fixed.”
In short…if I, as a solicitor, have indicated acceptance of an offer from Buyer Number One and I subsequently receive an offer from Buyer Number Two, I cannot negotiate with Buyer Number Two on your behalf, let alone accept Buyer Number Two’s offer on your behalf.
Does this mean that you a property seller in Scotland is prevented from accepting a better offer from another buyer? In other words, do these guidelines actually prevent gazumping from happening when a solicitor is acting as the estate agent for a property seller in Scotland? The answer is ‘no’!
As I’ve said, the fundamental principle in this agency relationship is that: we have to take our client’s instructions and then act on those instructions AND we have to act in the best interests of our client, not ourselves.
Therefore, if we receive an offer from another party, even after accepting one from the original buyer, we have to take that offer to our client. The law of Scotland does not prevent a property seller from considering offers from other parties after accepting an offer from a buyer. In Scotland, there is no contract until the missives.
After that, the missives usually contain some provisions for damages to be payable if either the buyer or seller withdraws from the transaction after the missives have been concluded, but even then we would still have to let our client know that we have received a further offer, even if missives are concluded. Of course, our advice would be that they have already concluded missives and we’d have to outline the legal consequences of accepting an offer from someone else at that stage.
So How Do These Rules Negatively Affect Property Sellers?
If you have accepted an offer from someone, your solicitor/estate agent cannot accept an offer, on your behalf, from someone else. What’s more, they can’t even enter into any kind of negotiation on your behalf with that person! So even if it is only tentative interest at this stage, they can’t go back to them, find out what they are prepared to bid, speak to you and then tell them that you’re not interested.
And meantime, whilst the seller’s solicitor/estate agent is prevented from even discussing a potential offer with a second buyer, the original buyer of your property can walk away from the deal at any time, scott free! Your property is therefore off the market until missives are concluded.
If the seller does want to negotiate with, or accept, the second offer, the solicitor/estate agent, because of the Law Society Guidelines, has to withdraw from acting on the seller’s behalf and instruct them to find a new solicitor.
What are the consequences for the seller? It can cost the seller money. The solicitor is likely to want to be paid for the work done to date in marketing the property. Then a new solicitor will have to be paid to negotiate the offer, re-market the property if the deal falls through, and of course to do the conveyancing when the property sells. It means that you don’t have the solicitor whom you trusted and shopped-around for to negotiate your sale on your behalf.
Might this obligation to withdraw from acting on the seller’s behalf provide solicitors with a bit of a conflict of interest?
Most solicitor/estate agents’ fees depend on them actually selling the property. If they sell the property, they will be paid their fee when the sale settles, at the date of entry. So where a second offer comes in and their client is inclined to go back and start negotiating with this second potential buyer, they are more likely not to be paid the estate agency fees, plus of course the conveyancing when the property sells. Might this affect their advice?
As it happens, this doesn’t affect us now at MOV8 Real Estate because we charge a low fixed fee that isn’t dependent on sale. It used to affect us though, in the days when we charged percentage-based commission on sale.
The official answer is that it should not make any difference because solicitors are bound, ethically, to always act in their clients’ best interests, regardless of their own self-interest. However, I have heard the view expressed that where that solicitor is going to lose a sale, lose the client to another solicitor and potentially wave goodbye to their estate agency fees, this might have some effect on their ability to be completely impartial in the advice that they give their client. Whether or not this is the case is slightly irrelevant: it doesn’t look good.
Are These Rules Fair to Property Sellers in Scotland? How to Redress the Balance.
Do I think that these rules serve property sellers in Scotland? No, I don’t. Remembering that the buyer, until missives are concluded, can walk away at any time from the deal, I don’t see why a property should be ‘off the market’ until missives are concluded.
Do I think that these rules serve property buyers in Scotland? Well, yes! They provide an incentive to sellers to disadvantage themselves by taking their property off the market or refusing to discuss a potential offer with a second buyer (through their solicitor), even if it’s only to prevent inconvenience to themselves when their solicitor would have to withdraw from acting for them. And all the while, the potential buyer can be looking at other properties, trying to find something better, and stalling on concluding missives.
Does this seem fair to me? Absolutely not. It’s unlikely that buyers will make a promise to take themselves out of the market! However, to take the property off the market during the negotiation of missives, even if only for a couple of weeks, seems grossly unfair when the buyer can still walk away at any point prior to missives being concluded.
Part of the problem here is that many conveyancing solicitors in Scotland still operate in the way that the profession did 50 years ago. They have small high street practices, many don’t use email, some seem to believe that 3 days or more is a respectable time-frame for returning a phone call or email, and many aren’t available or in the office for several days at a time. This means that the conclusion of missives is a torturous and drawn-out process when in reality, most of the time, it should be a simple exchange of a couple of letters. Points of debate can be hashed-out by email or phone call then a letter issued that actually encompasses all these points. However, many solicitors in my experience are resistant to that.
Another part of the problem is that most solicitors submit conditional offers in writing. This means that, even if they subsequently amend their offer verbally, the selling solicitor has to send a ‘qualified acceptance’ of that original offer, referring to the amendments that were made verbally. This puts it in the buyer’s solicitor’s hands as to whether, and when, they want to issue the letter that formally accepts all of those changes and therefore concludes the contract. All of which leads to massive frustration for the seller and their agent.
There are ways around all this, and we’ve tried them all. However, every time we try to do this, buyers’ solicitors are not only up in arms, but often threaten a complaint to the Law Society of Scotland:
- that the buyer pays a non-refundable deposit which will be deducted from the purchase price when the sale is concluded;
- that you want a ‘clean’ offer, not subject to any conditions, with all conditional clauses removed from it, in writing, before you will take the property off the market (because, technically, if the seller’s solicitor has this, they are able to conclude the contract by returning a letter and it’s within the seller’s control as to how long that takes);
- that you accept their offer but that you will continue marketing the property until missives are concluded and will remain open to offers and this is a condition of even conditionally accepting their offer at this stage.
These rules are so counter-intuitive and so widely-misunderstood amongst the legal profession that, sadly, sometimes they do lead to disputes and all sorts of.
Indeed, the misunderstanding of these rules is so rife that I have spoken to solicitors who have taken the rules even further than they were intended to go…
How Some Lawyers Misunderstand the Anti-Gazumping Rules and the Problems This Causes for Their Buying Clients and Other Solicitors
I spoke only a week or so ago to a solicitor (who will of course remain nameless!) who had advised his client to take a complaint to the Law Society of Scotland alleging a “serious breach of Law Society Rules”. The allegation was that we had breached the anti-gazumping guidelines by informing our client that we had received an offer by fax, after we had accepted an offer from this solicitor’s client.
The rules here are simple: I have to inform my client of that offer. I can’t tell someone that they can’t or shouldn’t make an offer on my client’s property unless my client has instructed me to do this. To do this clearly only serves me, not my client, and is a conflict of interest.
Fortunately the buyer got in touch with us directly and I was able to put him straight before wasting a huge amount of time. However, between dealing with that buyer, educating his solicitor on the rules and speaking to the Law Society to make absolutely certain that we were correct, I wasted the whole of a Friday afternoon.
All of this is made worse by the fact that, although many solicitors think they know the anti-gazumping rules stated above, they ignore the fundamental bit below which also is part of the same guidelines:
“Solicitors acting for purchasers who have received a verbal or qualified acceptance – whether following a Closing Date or not – should advise clients that although an initial acceptance may have been given by the seller, the contract will not be binding until Missives are concluded. Solicitors acting for prospective purchasers should advise their clients that noting an interest may not guarantee the clients an opportunity to offer, and if the clients are not in a position to put in an early offer they may not be allowed an opportunity to submit an offer at all.”
By not advising their buying clients fully on exactly what can go wrong, even when an offer is accepted verbally, they panic when the seller accepts an offer from Buyer Number Two and start blaming the other solicitor’s conduct. This happens so regularly that I am absolutely sick of it.
The Danger of Accepting an Offer ‘Subject to Survey’: Taking Your Property Off the Market and Increasing the Chances of Falling Foul of the Anti-Gazumping Guidelines
When a buyer submits an offer that is subject to a survey being carried out, subject to a Home Report being approved by their lender or indeed subject to any other condition else, and that clause is completely conditional on the buyer, subjectively, being satisfied with the results of that survey or whatever it is that they have asked for, the offer isn’t really worth the paper it’s printed on.
It means that the buyer can go and get their own survey done, or not even bother, view other properties in the meantime. Effectively, the offer is nothing more than a ‘sounding out’ of whether you, the seller, are happy with key elements like the price and date of entry.
However, in the meantime, if the seller indicates acceptance, or indeed just acceptability, of this offer then they are considered to have entered into negotiations with this buyer. This means that the seller’s solicitor/estate agent cannot negotiate or accept on the seller’s behalf another, better offer from another buyer.
So whilst the buyer is gets first dibs on the property, the seller has to take it off the market or risk having to instruct their solicitor to withdraw from acting on their behalf if another offer comes in. This might only be fair when the buyer is paying hundreds of pounds for their own survey: undertaking to taking the property off the market for a day or two to allow that to happen might be acceptable to the seller. But in most other circumstances it seems to be incredibly unfair.
This is why we have to fully advise our selling clients on exactly what it means to say that an offer, subject to survey or Home Report approval, is accepted or acceptable. We have to make it perfectly clear to the buyer’s solicitor that, until they submit a clean/unconditional offer which is in terms acceptable to our client, our client will continue to market the property and be open to other offers, and even then there is no guarantee that the price that their client has offered will be accepted at that point. It causes all sorts of aggravation with other solicitors who feel that what we are doing is somehow contrary to Law Society guidelines or at least is just unjust. However, it’s our selling client who we have to look out for and, in our opinion, taking your property off the market when you have a completely conditional offer is not, usually, in their best interests. Of course, some clients instruct us otherwise, and then we follow their instructions to the letter.
Do the Rules Need to be Changed? Clue…Yes!
My personal opinion is that the Law Society of Scotland’s anti-gazumping guidelines are stacked completely in favour of the buyer, that they penalise property sellers, that the public at large can be forgiven for not knowing that such a system exists when they put their property on the market with a solicitor/estate agent, and that the guidelines should be scrapped and replaced with something that creates a level playing field.
I can also see an argument that the guidelines could be accused of creating a financial conflict of interest for solicitors who have to choose between offering impartial advice and walking away from a large estate agency and/or conveyancing fee and/or losing their client forever to another solicitor and that they therefore don’t engender trust in our profession. I can see an argument that the guidelines conflict with the right of the public to choose their own legal representation, regardless of the circumstances. And I know from experience that the guidelines are widely misunderstood and often not followed within the legal profession.
The reality is that solicitor/estate agents do not hawk a property around further buyers after having agreed a sale. In every gazumping situation that I have experienced, the whole process has been completely client-led, usually with the Second Property Buyer being known to the seller or communicating with them outwith us.
Our selling clients often seem quite shocked when we have to withdraw from acting on their behalf, but with the exception of a handful, they go ahead and take the significantly higher offer, and we can’t blame them! Any who don’t go ahead with the higher offer, I’m left wondering whether it was because we told them we would have to withdraw from acting for them and they just thought that this was too much hassle.
If that is the case, however, then I can see an argument that a regulation that is designed to prevent an unpleasant situation for property buyers is clearly preventing our selling client from getting the best result for themselves. In that case, there is an argument that our actions as solicitors in following the Law Society’s guidelines has actually prevented our client from getting the best price for their house and therefore that the guidelines are forcing us to act against the best interests of our clients.
Gazumping is not illegal. My argument would be that if it was such a big problem at a national level, our own parliament would have created laws to prevent it. In reality, our clients make the decision that they want to accept another offer or negotiate with another party after verbally accepting an offer. By all means, if the buyer is going to spend a lot of money on a survey then they can ask that the seller commits not to accept another offer in the meantime, but in any event this still doesn’t prevent the seller from (a) going back on his or her word, or (b) allowing those few days for the survey to be done and THEN withdrawing from the deal.
So How Do I Suggest to Fix This Problem?
I would suggest the main problem here is not so much gazumping as (a) buyers’ solicitors not managing their expectations correctly, and (b) solicitors not concluding missives quickly enough after verbal agreement of the key parts of the deal (price, date of entry etc) which leads to there being no binding contract until several weeks into the process.
Everything in the process of buying and selling a property in Scotland, particularly where the seller is being represented by a solicitor/estate agent who is bound by the anti-gaumping guidelines, is stacked in favour of the buyer.
The solution as I see it is as follows. Buyers’ should have to submit an offer, in writing, that the seller is, on the face of if, happy with. That offer should have no conditional clauses in it that are subject to the buyer’s subjective position. This means that, in theory, the seller is in a position simply to accept the offer.
It is at that point, and only at that point, that a solicitor acting for a seller should be obliged to withdraw from acting if the seller wants him to enter into negotiations with another party. Up to that point, the property should remain fully on the market.
When a buyer is committing themselves to expense such as a survey, a proforma contract can be drawn-up whereby if buyer gets the survey done within an agreed time and decides to go ahead with the purchase, but the seller decides to sell the property to someone else at any point prior to conclusion of missives, they will reimburse the buyer for the cost of the survey.
Solicitors should be bound to a simple Service Level Agreement which applies to their behaviour between each other, with phone calls and emails having to be returned within 24 hours unless there is a good reason. Solicitors should be forced to have to have an email account and to use it when the other solicitor wishes to communicate in this way.
Whilst I acknowledge that some measures to prevent gazumping are welcome, I feel that depriving a client of their solicitor is a serious step to take. It should therefore only be done where the buyer, and their solicitor, have taken all reasonable steps to ensure that their offer can actually lead to a concluded contract. Otherwise, the offer isn’t worth the paper it’s printed on and yet leads to all sorts of legal ramifications for the seller if he says that a couple of the main provisions are acceptable.
I do not anticipate however that any of these ideas will be adopted! So in the meantime, I hope that this article has helped to clarify some of the areas that you have to look out for as a property seller and that you might find it useful.