Gazumping 101 – Understanding the Art of Offer and Acceptance
You’ve just made what you think is a great offer on your dream house but then it is sold to someone else at a higher price. You’ve just been gazumped. Find out how you can stop this from happening next time you buy property.
‘Gazumping’– it may sound like something fun from a Dr Seuss book but if you have actually had this happen to you while you are trying to buy a property, you will know that it is definitely not the case.
According to NSW Fair Trading, gazumping occurs when you have a verbal agreement with an agent or seller to buy a property at an agreed price but then the vendor decides to sell the property to someone else, usually for a higher amount. In some situations (but not always), you may be given the opportunity to ‘match’ the alternative price.
The agent is legally obliged to pass on to the vendor any further offers received for the property up until the exchange of contracts.
While you may have signed a contract and verbally agreed on a price, nothing is definite until the exchange of contracts so you need to be careful about how to approach the offer and acceptance process.
The bad news is that if you are gazumped—also termed ‘shopping the offer’—neither the agent nor the vendor needs to compensate you for any money you may have spent on legal advice, building and pest reports, finance application costs or inquiries.
Gazumping benefits the seller (and the real estate agent) because it forces prices up and leads to more desirable contract conditions, such as a shorter settlement period.
Differing State and Territory Laws
The process of making an offer on a property can vary from state to state. For some areas, the first offer can be verbal, for others, it is written. Make sure you are across the rules and understand how the process works before you start.
New South Wales
Usually, a property sale is binding once the vendor and buyer exchange contracts, i.e. when the vendor signs their copy of the sales contract; the purchaser signs their copy, and the two parties ‘exchange’ their signed contracts. It is usual at this time for the purchaser to pay a deposit – usually 10 per cent of the purchase price.
Legally there is a five working day cooling-off period from exchange of contracts, which allows purchasers the opportunity to finalise finance and get building and pest reports completed while knowing that they have a binding contract. If a buyer doesn’t want to proceed with the sale, they lose a quarter of one per cent of the purchase price, which will be recovered from the deposit already paid.
It is pretty common these days for buyers to waive their rights to a cooling-off period by providing a 66W certificate signed by your solicitor or conveyancer to help ensure the sale will proceed.
When you make an offer on a property in Victoria, you write and sign a contract. You can make an offer as an expression of interest but you risk it not being taken seriously.
Contracts in Victoria differ from New South Wales and Queensland because they have only a three-day cooling off period, regardless of whether or not you’ve already had legal advice. If you decide to get out of the deal during the cooling off period, you have to pay 0.25 per cent of the property’s purchase price.
Any deposit (normally 10 per cent is required) will be paid by your solicitor or conveyancer to the real estate agent and held in the real estate agent’s trust account.
Buyers normally write their offer on an actual contract, which becomes binding once the vendor also signs it. Agents must submit all offers to the seller, but they also have a right to shop your offer around.
Queensland buyers have a five-business day cooling off period, which starts the day the contract is signed by both parties.
The buyer can, however, waive or shorten the cooling off period by giving the seller’s agent a form that’s been signed by a lawyer.
On the other hand, if a contract is terminated within the cooling off period, the seller must refund the buyer’s deposit within 14 days, but can still deduct a termination penalty equal to 0.25 per cent of the purchase price.
Buyers are encouraged to pay a deposit when signing the offer but if the contract falls through, the buyers are entitled to receive a full refund of their deposit. The money is normally held in a real estate agent’s trust account.
7 Ways to Protect Yourself from Being Gazumped
- If you really want a particular house, be careful not to offer too low a price but one that you consider fair and reasonable based on research and comparable prices. Don’t try to bluff too hard or chances are someone else will make a higher offer and you will miss out.
- Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor.
- It’s often best to make the offer in writing – this eliminates any confusion concerning what the offer and conditions were.
- Insist that the agent informs you in writing if another buyer offers more to give you the right to offer more.
- Buyers should put a timeframe on their offer, e.g. demand an answer by 5 pm the day you make an offer. You should also make an offer on a day where there isn’t an open inspection as this reduces the agent’s chances of having another offer on the same day.
- The vendor doesn’t always necessarily sell to the highest offer. Having your finance organised, pest and building inspections done, and your deposit cheque and 66W certificate ready to go will all work in your favour.
- If you are not confident about the offer and selling process, consider using a Buyer’s Agent. Buyer’s Agents will work solely on your behalf and are well versed in negotiating with real estate agents to ensure your offer is fairly represented to the vendor. They can also advise you on a fair price and organise the legalities of the buying process on your behalf.
Cohen Handler Buyer’s Agents can assist you with sourcing property that as well as guide you through all aspects of the offer and selling process. Contact us now.