How to avoid getting gazumped
Being gazumped on a property is not the greatest feeling, but the more you know about what it is, the better you will be able to protect yourself when it comes to buying a property.
Buying a house doesn’t become official or legally binding until the contracts have been exchanged. Until then, your ‘home’ could be sold to someone else if buying by private treaty. This is called gazumping and yes, it’s completely legal.
What is ‘gazumping’ in real estate?
Gazumping is when you have a verbal agreement with an agent or seller to buy a property at an agreed price, but the property is not sold to you in the end. This generally occurs when the seller has received a higher offer for the property before the exchange of contracts.
Is gazumping legal?
Yes, gazumping is legal. By law, the agent is legally obliged to pass on to the seller any further offers that are received all the way up to the exchange of contracts.
In saying that, gazumping cannot occur in every state of Australia. The act of gazumping is most common in New South Wales (NSW) and Victoria (VIC). It cannot happen in Queensland (QLD) or Western Australia (WA), as an offer is considered legal and binding.
When a property is sold by private treaty, the buyer has a five-day cooling-off period after the contracts have exchanged. This ends at the close of business on the fifth working day. This means an exchange can happen quickly and the buyer still has time to order their strata, pest and building reports. The downside for the vendor is the buyer can pull out of the sale. Choosing to withdraw an offer, means the buyer will lose 0.25% of the deposit.
In the current market, it’s common for many parties to be interested in one property. To make yourself more attractive to a vendor, you can waive the cooling off period. In NSW, this is done with a 66W Certificate signed by your solicitor or conveyancer. Waiving the cooling off period, however, means you’ll need to move quickly.
This includes having your lawyer or conveyancer look over the contract and checking for any defects with the property before exchanging. If you take too long, the vendor may sell the property to someone else.
While you can’t completely avoid it, there are ways to protect yourself.
Protect yourself from being gazumped
Getting offer accepted on a property or your first house is exciting, but it’s too early to pop the champagne. The best thing you can do is to be aware that it can occur and use it to your own advantage. Always be on the side of the agent and understand that any genuine offer you make must be legally passed onto the seller.
Be organised. Have everything ready before you make your final offer. Have your home loan finance pre-arranged, pest and other inspections complete, and your 10% deposit ready before attempting to exchange contracts.
Act quickly. The agent and seller will be more inclined to accept your offer if you show that you are genuinely serious. Purchasing residential property in NSW gives you a five-day cooling off period from the time of exchanging contracts. Remember, they want the best outcome for and if you can make the process smoother for them, your own chances are greater.
Get it in writing. Making the agreement legally binding as soon as possible is the best way to avoid being gazumped. A verbal agreement counts for nothing in the purchase of property. Make sure you have your conveyancer or solicitor examine a copy of the sale contract as soon as possible.
Consider a 66W. If you are serious about buying a particular property in NSW and have done your due diligence, you may want to use a 66W Certificate to waive the cooling off period. This will normally be of more interest to the owner/seller because it guarantees the sale.
Use a Buyer’s Agent. It’s the job of a Buyer’s Agent to act in the interest of the buyer and help minimise risk and stress. To ensure this doesn’t happen to you speak to a Buyers Agent.
In what circumstances can gazumping not occur?
Gazumping cannot occur in the auction process – the highest price bid at auction wins. To clarify, you cannot be gazumped after the exchange of contracts.
Still not sure?
In a nutshell, the more organised you are, the quicker you’ll be able to exchange contracts and ultimately have less chance of being gazumped.
There are professionals out there like buyers’ agents that can help minimise the risks. Additionally, educating yourself of the common pitfalls and traps of buying your home is your best method of protection. There are short courses to help you get your head around it, with a whole section dedicated to dealing with real life examples of contract exchange.
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