I have long been vexed by how to answer the question from members of my team about what they are allowed to do and to say when a buyer calls us about a property that is Under Offer or Sold Subject to Conclusion of Missives (SOLD STC) and asks whether they can make an offer on it. Alarm bells immediately go off, with the ugly ‘G Word’ rearing its head all over the office. That word, of course, is ‘Gazumping’ (gasp!).
This is one of the longest-standing training issues we have as a company and one that I have never quite managed to crack. However, I had to have another attempt at it today and drafted a training document for the team here at MOV8. I thought that it might be useful to share it with you, the property buying and selling public, to try and demystify the rules surrounding gazumping in Scotland, to highlight the difference between the way that ‘regular’ estate agents and solicitor/estate agents have to treat gazumping issues and to hopefully shed a little light on why it’s not 100% straight-forward to understand, even for people who work in the industry. What follows is a slightly redacted version of our internal training document. Enjoy!
This common question brings us back to our old friends, Mrs Gazumping and Mrs Gazundering plus their chums, The Law Society of Scotland Guidelines. These Guidelines relate to Solicitors acting as Estate Agents. These rules are, frankly, a heinous [REDACTED]. What fun…!
I have written about these before: http://www.mov8realestate.com/blog/item/78-gauzumping-in-scotland-what-you-need-to-know.html
And here are the Law Society of Scotland Guidelines themselves: https://www.lawscot.org.uk/rules-and-guidance/section-f-guidance-relating-to-particular-types-of-work/division-c-conveyancing/guidance/gazumping,-gazundering-and-closing-dates/?letter=G
The Common Sense Answer (i.e. The One We As Solicitor / Estate Agents Can’t Actually Do)
First things first, here is something that we have to remember at all times: irrespective of being solicitors acting as estate agents, our job is to take our client instructions and our job is to act in the best interests of our client.
Let’s paint a scenario that illustrates what common sense would tell us that an agent acting in a sale would do. Let’s imagine that:
- you wanted to sell something
- you were paying me money to try and get you the best result for you for that sale,
- someone came along and said, ‘I’d like to buy that, subject to a sometimes lengthy and complicated legal process being completed over the next 6 to 8 weeks, during which all sorts of things can go wrong’
- someone else came along a week later and said, ‘I’m possibly interested in buying that’
- I told that person that I wasn’t interested in talking to them and that they should go away
- the lengthy and complicated legal process with the prospective first buyer broke-down
- you were upset and asked me if I had been speaking to anyone else who might like to buy it
- I told you that, ‘Yes, I have been speaking to a few potentially interested parties in the meantime, but I have told them all to sod off’
Would you be happy? Or would you want to come round to my office to rip my throat out (even if you were too nice to actually do that kind of thing)? I’ll wager than unless you have turned to Zen Buddhism, it will probably be the latter.
You would expect me at the very least to take-down that potential buyer’s contact details. You would perhaps even want me to encourage them to make an offer on the property. And, if that potential buyer was a good, well-qualified buyer who was prepared to offer £20,000 more for my property than the first buyer, you’d be forgiven for thinking, ‘Sorry Buyer Number One, but you’ll have to find another house because, as much as I liked you, I’d prefer to have £20,000 more in my pocket.’
If you are NOT a law firm and are ‘only’ acting as an estate agent, you wouldn’t need to read any further. This is what you would do. And, if you didn’t, I think you’d have your client in your office kicking up merry hell.
However, we as a law firm aren’t ‘only’ estate agents (at times, more’s the pity!) so you do need to read on… 🙂
Ladies and Gentlemen…Welcome to Mr and Mrs Gazumping and Gazundering
Accepting an offer from someone else after you have already accepted one from a first party is what is called gazumping. Most often it is accompanied by the estate agent going back to the first party who offered on the property and asking them to increase their offer. Buyers hate it, not surprisingly. Sellers probably aren’t quite so fussed (particularly if it means that they can get a higher price for their property). Please note: IT IS NOT ILLEGAL or AGAINST THE LAW (we’ll come to what the Law Society of Scotland says about it in a second).
The opposite practice, where a buyer reduces their offer some time after their original offer has been accepted, but before the legal process to complete the sale has been finished, is called gazundering. This can only really work if the seller’s hands are tied as a result of having bought something else or because they don’t want the inconvenience of re-marketing and having to sell the property again: in other words, something has happened that means they are not in a position to go back to the buyer and tell them to get lost. Please note: IT IS NOT ILLEGAL or AGAINST THE LAW (we’ll come to what the Law Society of Scotland says about it in a second).
Let me say now, I have personally been gazumped in the past, I know several other people it has happened to and we see it happening in spite of the Law Society Guidelines anyway. So I know how much it sucks when you are a buyer and I have a huge amount of sympathy. This is a systemic problem that is caused by various elements of our property buying and selling process that mean it is not possible, in most cases, to get from verbally accepted offer to concluded, legally-binding contract as quickly as everyone would like.
In the meantime, until there is a legally-binding contract, the best that can be said is that there is some form of agreement in principle on some of the terms of the contract and that it is LIKELY, but by no means certain, that there will not be issues in the meantime. Until such times as that issue is fixed (things like e-conveyancing and the electronic agreement of conveyancing documents will undoubtedly help with this but our profession is dragging its feet and will undoubtedly find ways to delay it and refuse to adopt it because they prefer touching paper), gazumping and gazundering will remain a real problem.
Meantime, until the systemic issues are solved, there is something else that buyers can do to help to avoid being gazumped. It won’t work in all cases. But it will often get around the Number One reason for the property that you want to buy being sold to someone else: get your ducks in a row, financially, before you submit your offer. Submitting an offer, not having your finance all sorted out, then having to chase your lender for the next few weeks whilst the legal work can’t actually be completed is absolutely going to increase the chances of this happening. Trying to deal direct with a lender instead of going to an experienced, professional mortgage adviser who can tell you with far more certainty than you will be able to have as to whether or not your prospective lender will follow-up their Decision in Principle (DIP) with an actual Mortgage Offer, bearing in mind the specific type of property, the various other criteria that this particular lender has, plus a cold-light-of-day analysis of your actual financial position (and not the one that you THINK you have with regards to that Christmas bonus that you are hoping they will take into account as regular income or salary), is one sure-fire way to increase the chances that the seller looks to another buyer.
So, in conclusion, gazumping sucks if you are a buyer, there are some things you can do to minimise the chances of it happening, and although it is hated by most people it is not illegal and, when you think about it, is actually very much in an estate agent’s client’s interests on some occasions.
So, what does the Law Society of Scotland say about all of this?
The Not-Really-Common-Sense Answer (The Law Society of Scotland’s Guidelines on Gazumping and Gazundering)
As a solicitor acting as an estate agent, we have to act in the best interests of our clients. We would do that anyway, because we are good people, but this reinforces that point if at all necessary. However, there are some exceptions to the circumstances in which we have to act in our client’s best interests it would seem…
I can only assume that someone high-up in the Law Society, a few years back, was miffed at having missed-out on a property [REDACTED] that they really wanted to buy and, as a result, came up with the most badly [REDACTED] as a means of revenge [NOTE: this is a JOKE and I am absolutely in no way implying that anybody at the Law Society of Scotland would have drafted bad guidelines/rules as a way to try and influence the system of property buying and selling in Scotland in a way that would benefit them either as a property buyer or solicitor].
These Guidelines seem to me to be contrary to the principle that you must act in the best interests of your client. And they are so widely misunderstood by the legal profession that we spend more time arguing with other solicitors about their meaning than we do actually acting for our clients in some sales. They are also fully counter-intuitive to our clients who would be forgiven for wondering why the hell they engaged the services of a solicitor as an estate agent in the first place if they aren’t actually able to act solely in their interests in trying to get them the very best price for their property.
None of this is helped by the steadfast refusal of many at the Law Society of Scotland to give clear, definitive guidance as to what the guidelines actually allow us to do and not to do. As a result, confusion reigns, we have been assured several times that the Guidelines are going to be brought in-line with modern, up-to-date circumstances, and yet nothing has been done thus far. As a result of this lack of clear guidance, the confusing nature of the Guidelines and the fact that every solicitor we speak to seems to have a different interpretation of what they mean, what follows can be nothing other than our relatively confident interpretation of what the Guidelines actually mean (you can read them yourself at https://www.lawscot.org.uk/rules-and-guidance/section-f-guidance-relating-to-particular-types-of-work/division-c-conveyancing/guidance/gazumping,-gazundering-and-closing-dates/?letter=G):
- If you have indicated acceptance of an offer (whether verbally or in writing), you cannot enter into negotiations on another offer. Note, this includes the situation where you have verbally accepted price and date of entry but the buyer is away to their lender to get the Home Report ‘approved’. In my opinion, this is something that they could have done BEFORE they submitted their offer (particularly if they had taken professional mortgage advice because the adviser will know whether that particular lender accepts that particular Home Report for lending purposes) and it is therefore, in my opinion, absolutely fair game that the buyer leaves themselves open to someone else coming in and buying the property until such times as they know the situation with the Home Report. After all, the buyer can come back and say, ‘Nope, thanks for taking your property off the market for 5 days, but my lender won’t accept this Home Report and I’m not prepared to pay £300 for the mortgage valuation report that I will have to get as a result of that’;
- You can take a second (presumably better) offer to your selling client, but then you would have to withdraw from acting as their solicitor if they want to enter into negotiations on, or accept, that second offer;
- If your buying client wants to reduce their accepted offer, you have to refuse to act for them;
- Various other very, very difficult to read and understand provisions, blah blah blah.
What Does all This Mean That we, as Solicitor / Estate Agents Should do in Practice When Someone Wants to Submit an Offer After we Have Already Accepted, or Indicated Acceptance, of One?
- These are rules/guidelines for us as solicitors, not for our client, 99.999999% of whom will be completely unaware of their existence and hugely surprised when we tell them of the effect of these rules on their ability to get the best offer on their property (even though we DO have a section in our Terms of Business about these ridiculous provisions);
- Our client can therefore do whatever they want, because they aren’t subject to these guidelines – it’s just us whose hands are tied;
- They are not law (they are not even common sense, see above): they are just guidelines/rules for solicitors;
- They don’t have any effect whatsoever on buyers, 99.999999% of whom will be completely unaware of their existence;
- If a buyer wants to make an offer, after we have accepted an offer on behalf of our client, there is nothing at all that we can do to stop them!!;
- If that does happen, we have to take the offer to our client and, if the client wants to discuss the offer/enter into negotiations about it, we have to withdraw from acting and advise them to find a new solicitor (speak to a senior colleague if this happens).
If a potential buyer approaches us and asks, ‘Can I submit an offer on this property?’, and that property is Under Offer or we are negotiating an offer with a buyer or their solicitor about it, what should we say?
- Tell them that our client has already accepted an offer on this property and that it is currently Under Offer;
- Only if it is true, tell them that the legal process is already at an advanced stage (we are really trying to discourage the kind of scenario where they are really just testing the water, aren’t serious, but just want to see what they could get away with price-wise, only to pull-out later anyway leaving our client in the position of having lost two offers and being back to Square One);
- Make sure to really, really qualify this potential offer!! Get details of the Date of Entry, any other additional conditions, what their financial position is. We don’t want our client to lose their existing, really good offer because their head is turned by a good price but absolutely unacceptable other conditions in the offer (which only come to light later on in the process if we don’t qualify the [REDACTED] out of this potential offer);
- Tell them that we can keep their details on file and, if this offer falls-through, we will get back to them (in other words, don’t effectively just tell this potential buyer to ‘go away’…although this is actually very common practice amongst our solicitor /estate agency colleagues, it’s against all common sense as to what we are actually doing as a seller’s agent…again, see above!);
- If they still want to submit an offer, advise them that we will take any offer that they submit to our client;
- Take that offer to our client, outline the pros and cons of what will happen (one of which is that they will have to instruct another solicitor PLUS, in many, many cases, the buyer isn’t very serious and is just chancing-their-arm with an offer at this late stage because, often, they are bitter at having lost out at a closing date on the property or they have previously submitted a low offer and someone else came in, subsequently, with a higher one that the seller accepted).
- Speak to a senior colleague about what happens next!
What should we not say if a potential buyer approaches us and asks, ‘Can I submit an offer on this property that’s Under Offer?’?
- ‘No, it’s Under Offer’ [Like a faulty, multi-story car park, that’s wrong on a number of levels]
- ‘I’m afraid the law says you can’t do that’ [The law says nothing of the sort]
- ‘Yes, but there are a whole bunch of Law Society rules that make it hugely complicated for us and we’d really, really, really rather than you didn’t because it will cause us a huge amount of hassle, deprive us of the estate agency fee and it’s all completely counter-intuitive and our profession really needs to get its house in order here with these daft Guidelines (pun intended)’ [You would almost be forgiven for saying this on the basis of including the pun]
- ‘Well, thanks for asking, I’m actually bound by Law Society rules to do the very best that I can for my client and yet their own same regulatory framework actually prevents me from being able to even WANT to take your offer to them. I can take it to them and, really, I kinda HAVE to take it to them, but rest assured the commercial implications of this, in that I’ll be struggling to get the estate agency fee that I have worked so hard for in the last few weeks, mean that, although of course I would make no imputations whatsoever against my own or indeed my profession’s ability to remain 100% committed even though commercial interest dictates otherwise, I wouldn’t be surprised if you as a client thought that I was most likely not to really put 100% into recommending that my client accepts your vastly superior offer. Being honest, I’d really rather that this conversation wasn’t happening and I am absolutely, in no way, I must stress, not doing all I can for my client in this situation to get them the very best possible result. I hate you, I hate you, I hate you Mr or Mrs Gauzumper.’
In spite of my best efforts, this is likely to be about as clear as mud. If you have any questions, give us a shout!
What is absolutely certain is that, Law Society of Scotland Guidelines aside, we absolutely don’t want Gazumping to happen. In most cases, it’s really not in our selling client’s interests and, most often, the original offer that was accepted is the stronger offer even when another one comes along. What is also certain, though, is that in some cases a better offer WILL come along and that, if I was a seller, I’d absolutely want to be able to take that offer.
It is not my interest, as a seller, whether the legal system of our country allows gazumping to be possible. Nor is it my interest, as a seller, that gazumping is the dirtiest word in the property world. All I want to do is to sell my house for the best price in the quickest possible time (or in a timescale that suits me). Sadly, as it stands, the system, further enhanced by these Law Society of Scotland Guidlines, does everything it can to prevent me from doing this and, in my own opinion, that is unacceptable.
I found this brilliant and fascinating – as a prospective buyer and not a legal expert. I suppose you could make the case that, while solicitors being strongly disincentivised to allow gazumping is not strictly in their clients’ best interests, it is in the interests of the system as a whole. If the guideline was not in place, the closed-bid process would potentially break down: why bother putting in my best and final offer as a buyer if I know that, were I to lose out, I always have the chance to come along later and improve it…
Enjoyed reading this very much, and learnt a lot – especially as one based in England but considering buying a place in Scotland. Yep, as you say, clear as mud, but the mud is more transparent after reading this than it was. And a highly entertaining read too!