The problem lies in the protracted time taken between Agreement of terms, the obtaining of a mortgage offer and a structural survey which leads to the consolidation, by way of an exchange of binding contracts, where a non-refundable deposit is paid.
Both the USA and Scotland claim to have the perfect solution whereby, supposedly, you can exchange an immediate contract for purchase, pay a deposit, and this is designed to deny the opportunity of either buyer or seller reneging from the agreement. This system looks ideal except for the fact that the ‘devil is in the detail’ i.e. they are subject to mortgage finance and structural survey and therein lies the difficulty.
As a seasoned veteran in the UK Residential Property Market for the last 40 years I know all the ‘tricks of the trade’. I can tell you that even with these ‘quickie’ exchanges a canny purchaser can ‘wriggle out’ of these agreements if they want to. By way of illustration, all the purchaser needs to do is to is to deliberately frustrate their own ability to obtain a mortgage or, overstate the surveyors concerns about the structure or services of a property and ‘Bob’s your uncle’ you have ‘wriggle’ room to renege. This is a little ‘lop sided’ since it is more difficult for the seller to ‘get out’ of the contract than the buyer which, you could say, seems a little inequitable.
In the UK, easyproperty.com claim to have the answer by arranging an instantaneous exchange of contracts subject only to a mortgage offer and a structural survey. The downsides here are that not only must the seller and buyer use the same facilities of the site but so do the participants of any related chain.
At the moment, in all the sectors of the property market across the UK, there is, to a more or lesser degree, illiquidity in the markets, mainly due to the ill-fated fiscal policies of our ex chancellor, with ever increasing chains of buyers and sellers trying to consolidate transactions that are being frustrated by the lethargy of the Market.
There is no perfect solution here but a ‘half way house’ version could be that the buyer and sellers solicitors agree to exchange an immediate ‘lock out’ agreement which gives the buyer time to organise their survey and obtain mortgage finance whilst the terms are fixed under this agreement. This, technically, could be signed within hours or days of an agreement in principal and is designed to prevent the parties being able to renege from the agreement. Unless a non-returnable deposit is lodged by the purchaser they could still prevaricate if they found a cheaper property elsewhere and thereby undermine the agreement if they wanted, so ‘nothing is perfect’.
Gazumping is a ‘Bull Market’ phenomenon, whereas gazundering is a ‘Bear Market’ equivalent. By their very nature they are unilateral processes i.e. one decided by one party not two, whereas, an agreement is a bilateral process which involves two parties.
In my travels I have known a seller who had previously ‘given his word’ to sell a property to a buyer and then ‘bought his word back’ for a sum of money (with the purchaser’s agreement) in order to sell to another buyer at a better price. All three parties were delighted with the result and this is what we call ‘ethical gazumping’ which is far more morally fragrant.
In the absence of this simple measure, I’m afraid that in Bull Markets gazumping will be rife and in Bear Markets so will gazundering. So life goes on!