How to Avoid Being Gazumped in French Real Estate
Buying Real Estate in France
In London, the conversation during after-work drinks inevitably turns to house hunting frustrations. There is always someone drowning their sorrows after just having been outbid at the last minute. No surprise that the English adopted the satisfyingly resonant Yiddish expression gezumph to name the devastating experience of having your dream property snatched away by a competitor right before the exchange of contracts.
In England and Wales, this practice is possible because there’s no binding sales agreement until the actual exchange of contracts. Also, agents are required to continue passing on all other offers after the vendor already has accepted an offer. During the period between the verbal acceptance of an offer and the written contract of sale, buyers not only invest emotionally in what they hope to be their future home; they also spend money on surveys, solicitor’s fees, and confirmation of their mortgage offer. This is why the practice of gazumping is so devastating.
Is Gazumping Possible in France?
France’s conveyancing laws are very different from those of England and Wales and in certain ways, buyers are very well protected in France. The initial binding contract of sale (compromis de vente or the unilateral promesse de vente) contains several conditions that allow the buyer to get out of the sale after signing. These conditions can include mortgage financing and the satisfactory outcome of a structural survey.
Once both parties have signed this French preliminary sales contract, the vendor cannot pull out of the sale, unless they pay a 10% penalty and risk being taken to court for specific performance. But the buyer does have ten days to change their mind without any penalty. This means that even if the vendor did not accept a structural survey as a condition in the agreement, it is possible to invest in a survey to be done during this cooling-off period with the certainty that the vendor cannot change their mind. The correct answer to the question, “Is Gazumping possible in France?” therefore, is “No.”
Tricky Time: After Price Agreement and Before Signing
The period before the initial contract is, however, still fraught with potential pitfalls that French buyers should know. It is a little-known fact that during this early stage, buyers in France are more vulnerable than elsewhere.
This is the consequence of the unusual property listing practices in France. Vendors here tend to list their property with several separate agencies and rarely enter into exclusive listing agreements with one agent. Because listings aren’t shared only the agency that finds a buyer receives any compensation. And if the vendor ends up selling the property privately, none of the agencies get any fee at all.
Why does this “commission lottery” affect you as a buyer?
Let’s look at this example:
- You visit a property advertised with listing Agent A. Asking price is €800K. The property is also on the books of Agents Band C. You love the house and make a low offer. Eventually, the vendor accepts 700K.
- Agent A sends your details to the notaire(government-appointed solicitor), and you sit back and wait for the initial contract of sale to be drafted. Agent A won’t remove the listing from her website until the agreement is signed, but as she does not accept any further visits of the property, you feel safe.
- The vendor tells Agent B and C that he has accepted an offer at 700K.
- Agent B had shown the house a few weeks ago to a buyer who was very interested but found the house far too expensive. This buyer is still looking, and Agent B quickly contacts him.
- Agent C tells the vendor he’s crazy to accept this low an offer. He assures the vendor that he could sell the house for at least 725K euros and recommends that the vendor retract his acceptance.
- The Vendor decides he has made a mistake and tells Agent A that he is not going ahead with the sale.
Why did Agent B and C work so hard behind the scenes to obstruct the sale? Because only Agent A would get any commission if this sale were to go through! By preventing the deal from happening via Agent A, the other two agencies again had a chance of selling the property at some point and receiving the commission.
When vendors have accepted a relatively low offer, they’re more likely to change their mind in any event. With rival estate agents telling them to back out, it becomes a much more volatile situation. Not many foreign house-hunters in France are aware of this potential problem and how to safeguard against it.
How Do You Avoid Being Outbid?
Buyers who are the most vulnerable to being outbid are those who need a mortgage; or have agreed a very low price; live abroad; and/or don’t speak the language;
Actions that any buyer can take to mitigate the risk of a vendor pulling the plug before signing the initial sales contract are:
- If the seller wants to act quickly, make clear that you’re also ready to move fast. Prove this point by providing the notaire all the necessary information as quickly as possible. Explain to the notaire that you’re committed to the purchase and want to act quickly.
- Up to 50% of French sales are currently falling through because of buyers not getting their mortgage approved. If you have your mortgage financing pre-approved and can prove this, then a vendor is less likely to change their mind or to accept a higher bid. This means that you ideally not start your property search before first arranging the agreement in principle from a mortgage broker or
- It can be a good idea to sign an official offer (offre d’achat). The vendor’s estate agent might pressure you to sign their standard form, and you should tread very carefully here. If you don’t have your own representation already, then you should get legal advice or at least only sign an offre d’achat after you’ve checked that it is still subject to the signing of the initial contract of sale with the appropriate conditions and the subsequent 10-day cooling-off period.
True gazumping is not possible in France. However, the period after a verbal price agreement and before the initial sales contract is treacherous because of the systemic incentive for rival agents to find a buyer who can make a higher offer. You can avoid these pitfalls by preparing well before starting a search in France.
More reading: French Real Estate Terms to Know Before Buying.