Clamping down on gazumping
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What is gazumping and why is it a concern for homebuyers?
Trying to buy a home can be incredibly stressful and those stress levels rocket up another notch where there is a threat of gazumping, where a seller, after accepting a bid, changes their mind and takes a higher offer. Instead, Labour TD Conor Sheehan is proposing legislation which would require bids to be registered and published online to increase transparency and stop gazumping. We'll talk to him in a moment, but first, Shane Timmons is Senior Research Officer with the ESRI. Morning, Shane. Morning, David. Obviously, if bids were registered and published online, it would increase transparency. Would it stop gazumping and other nefarious practices, do you think?
So we ran a study for the Competition and Consumer Protection Commission. We published it back in February. And in that, we saw that just under a third of potential homebuyers expect something to come into play. And they do indeed favour more transparent bidding systems. So when we asked people about their preferences for how bids should be run, Over half of potential buyers favoured online bidding systems. So there are these systems that you can see where you enter your bid, you can see the number of other bidders and the history of bids and so on. But our evidence suggests that we would urge some caution here with these systems.
How could proposed legislation increase transparency in home bidding?
So as part of the study, we ran a short experiment comparing behaviour on their different bidding systems. So we compared that online bidding system to a mock estate agent system that people might be a bit more familiar with to a mock sealed bid system. So that's where all potential buyers put in one single offer. They're blind to the offers of others and the seller then chooses one of those. So that's a much more common system in Scotland. So looking at the behaviour side of it, rather than what people say they prefer, the sealed bids actually pushed house prices up about half the rate of the other bidding systems. So those online bidding systems and the estate agent system led to higher prices for buyers and it pushed them above their ideal budget.
Oh, that's kind of counterintuitive, isn't it? Because you would imagine with a sealed bid, you'd put in your best offer, your best and final offer. And the suggestion from the evidence you're quoting is that if people are in one of the other systems, they'll go beyond their best and final offer.
Yeah, and there's a lot of psychological reasons for this, actually. So we've got evidence for issues like auction fever. So when people get into that kind of competitive state, in particular with systems like that online bidding system and the estate agent systems, there's a period of time where someone has put in the highest bid, they feel like they have the house now. until someone else comes along and puts in another bid. So you experience what we would call loss aversion.
What findings did the ESRI study reveal about buyer preferences?
So you're going to feel that loss particularly strongly. Emotions then come into play. And that might be what's kind of pushing people to kind of bid higher and bid more than they would ideally like to bid on houses. So that would be consistent with the evidence that we see. So certainly worth talking about reforming systems. But I think we need some caution here in terms of exactly what that system might look like.
Yeah, I suppose the sealed bid system is more trustworthy in the sense that, you know, sometimes people might be trying to game the system to drive the price up.
So we do have some evidence on this kind of phenomenon of what's called ghost bidding. So that's where people suspect that someone on the seller side has invented a bid in order to push the price up. So about one in three potential buyers think they're going to face a ghost bid. And about 14% of people who bought a house think that they've experienced it. Now, obviously, that's going to be a very difficult thing to prove. But 14% think that they experienced a ghost bid. The issue that we also found in this study is that around a third of homebuyers aren't aware that this is illegal. So if an estate agent or seller is found to have done so, there will be legal ramifications for that.
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Chapters
8 chapters
1
What is gazumping and why is it a concern for homebuyers?
0:00–1:20
2
How could proposed legislation increase transparency in home bidding?
1:20–2:47
3
What findings did the ESRI study reveal about buyer preferences?
2:47–3:58
4
What are the psychological factors influencing bidding behavior?
3:58–5:09
5
How do different bidding systems affect house prices?
5:09–6:32
6
What is ghost bidding and how does it impact buyer trust?
6:32–7:44
7
What reforms are being suggested to improve the home buying process?
7:44–8:59
8
How can pre-sale readiness reduce stress for homebuyers?
8:59–14:04