Gazumping - When are you safe?

The estate agent is under a duty to keep passing on to the seller any offers he receives. So even after you have had your offer accepted, someone else may come in with a higher offer. In our system of property buying nothing is certain until contracts are exchanged. Any time before exchange of contracts the seller may pull out of the deal with you and start dealing with the other party - This is called “gazumping”. It is perfectly legal. You may have to outbid the other party to stay in the game.

There are things you can do to try to prevent gazumping, but none are very effective. You can have a ‘lockout agreement’ with the seller under which the seller agrees not to consider any other offers for a period such as two weeks. It's not really much use because the lock–out agreement doesn’t place the seller under any legal obligation to actually sign contracts with you when you are ready. He can just wait for the period to come to an end and then accept the higher offer. Even if the seller simply ignores the agreement and starts dealing with another buyer within the lock-out period, your only legal recourse is to sue for the costs you have incurred in legal and surveying fees. This is because the courts take a had line on property transactions and stick to the rule that the only contract which really matters is traditional exchange of contracts. You can take out insurance against being gazumped, which would reimburse you for your legal and surveying fees, but usually it is better just to accept the uncertainty.