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Comment by lotsofpulp | Hacker News Reader

> Presumably this would have all been avoided by requiring up-front payment, in escrow, before allowing someone to become physically involved in the business?

Yes, following the normal protocols and using lawyers and not using their gut feelings or caring about the buyer’s story would have prevented this.

The guy was broadcasting that he was not a desirable buyer, scam or no scam:

> Thirteen times he and Gregory requested pushing back the closing date, saying they’d be prepared to close “tomorrow” or “next week” or “next month” or in “the first weeks of the new year.”

I searched the article for “earnest money” and didn’t see any mention of it, which means the sellers were engaging with this buyer without the most basic of real estate transaction protections for the seller:

https://www.investopedia.com/terms/e/earnest-money.asp

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I don't know anything about the normal real estate closing process in Canada, but I learned (through a word game, of all things) that there are types of real estate fraud in some countries that are impossible (without explicit seller cooperation) in others. https://en.wikipedia.org/wiki/Gazumping

Gazumping is certainly annoying (OK maybe that's a bit too mild) but it's definitely nothing like "real estate fraud".

In the UK, a small property sale goes through a process roughly like this (skipping quite a few steps):

1. Buyer and seller informally agree to buy/sell a property for a given price.

2. Lawyers for both parties get to work, mostly on the buyers side to check everything is OK (e.g. structurally sound, all necessary planning and building regs in place).

3. Once everything is ready to go, both parties sign the contract - this is called "exchange" (because each side signs the contract separately then send their signed version to the other).

4. The contract typically (not always) stipulates that the transfer of money and ownership won't take place until about a week later - that time is called "completion".

If either party tried to pull out between 3 and 4 then this is a serious problem - they essentially can't, or if they do then it is breach of contract. But gazumping is where the seller pulls out before 3 (because they've gotten a better offer from another buyer before then). At that point the buyer has probably shelled out some legal fees but hasn't paid anything to the seller - I don't see how you could consider this fraud. Indeed the buyer could just as well pull out (e.g. because the checks reveals something about the house they don't like) or try to renegotiate the price. That's all above board before the contract is signed.

Edit: More specifically, I don't see how you could come up with a mechanism to prevent it. Should you lock in the sale price at step 1, before you do any checks? What if (as the buyer) the house is not in the condition it initially appeared to be? What if (as the seller) the buyer seems to be dragging their heels and delaying the transaction? You need a way to pull out of the transaction before the contract is signed.

Just FYI, because you specifically said UK not England - not all of UK works like this. In Scotland you sign a legally binding contract to buy the property at step 1. You can only get out of it if the house is found to be in poorer condition than advertised through inspections and solicitor work. So if you are trying to sell a house, sign a contract with someone at step 1, then someone offers you better money between 2 and 3 - tough luck, it's really hard to get out of it, you pretty much have to sell at the price you agreed to.

Ah, good point, I certainly should have said England rather than UK. Interesting that the Scottish system locks in price at the start, I wasn't aware of that - as my edit said, I didn't realise it could even be possible.

Edit: Looking into it a bit more, gazumping is rarer but not impossible in Scotland, and I don't think it's quite right to say the contract is legally binding at step 1. Things are a bit different because much of the work to determine the property's condition is done by the seller, not the buyer, in advance of offers, and many estate agents are apparently also convenyancing solicitors. And it seems gazumping is legally allowed until the contract is signed, but then the seller would need to change solicitor which acts as a disincentive.

You should probably mention that process and penalties are substantially different between England and Scotland. Property is one of the areas where legislation and customs differ a lot between UK countries.

Gazumping seems unethical, but it's also a quirk of language and agreeability. The "gazundering," aspect of this scheme is interesting from a negotiations perspective. If anyone accuses you of it, I'd recommend rejecting the accusation as bullying, and always refer any bid to looking at it when it's on paper.

If you have bought a car and agreed on the price, only to find there is another 30% of "fees," insurance, financing costs, freight, and random whatevers, or taken a minimum wage job only to be charged a uniform rental fee, you have been taken by a similar scheme. There are people who do this kind of scamming full time as their living, we call them "salespeople."

If a seller starts the discussion by advertising an offer to sell for $100, and the buyer agrees to continue the conversation at that anchor price, and then after getting details about the goods, the buyer comes back with a lower offer of $50, that's a pretty transparent negotiation. Naming this "gazundering," seems like a ploy to discourage beginners from negotiating.

It is the seller's responsibility to line up other offers, and it's on them to manage the opportunity cost of any discussions. Using deception to get leverage on the seller by using a fake offer that causes the seller to let go of their other opportunities would be a more accurate description of the unethical aspect of "gazundering," but even then, high stakes negotiations can become a kind of warfare.

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