Gazumping sounds like something that might happen during a board game, but in reality it can be extremely distressing for buyers in the property market.
Gazumping is when a seller accepts an offer from a buyer on their property, but then later sells the property to another buyer offering a higher price. Unfortunately for the buyer, the seller is not required to repay any of the legal costs, inspection costs or home loan application costs that you may have incurred.
The sale of a property is not legally binding until contracts are exchanged and the deposit paid. Any time prior to this you are at risk of being gazumped and losing the property to another buyer who has offered more.
So how can you protect yourself from being gazumped?
Organise your finances
You shouldn’t wait until you make an offer on a property to organise your home loan. There is plenty of groundwork you can do whilst house hunting which will not only give you peace of mind knowing you can afford the property, but it will save you valuable time when you do find a property you like. If you have already been pre-approved for a home loan, you may look like a more valuable buyer to a vendor and can grab a great deal quickly.
Check out the State Custodians online pre-approval tool which can give you an indicative pre-approval in minutes – perfect for re-crunching the numbers when you are out house hunting. Always ensure that you follow this up with a formal pre-approval which is a more thorough assessment with your details verified.
Get a copy of the contract ASAP
A verbal agreement is not legally binding, so if you are serious about purchasing a particular property, get a copy of the contract as soon as you can to have your solicitor look over it. This can be obtained from the real estate agent even before you make a formal offer. A lot can happen over a weekend or even overnight, so a few extra hours or days saved may mean the difference between securing the property or missing out to someone else who was able to get their ground work done sooner.
Don’t waste time once your offer is accepted
As soon as a purchase price has been agreed with the vendor, you need to move quickly to proceed to exchange contracts. So that you don’t take any risks, before you exchange contracts, you should have your finance fully approved, pest and building reports complete and your solicitor review the contract and be happy with what it contains. All this will take precious time so move quickly. Notify your lender as soon as your offer is accepted and forward a copy of the contract. Even if it is blank they will still be able to proceed to ordering the valuation which will take a few days to come back. Keep in close contact with your solicitor or conveyancer and let the pest and building inspectors know that your request is urgent.
Don’t risk everything by relying solely on the cooling off period
If you do decide to exchange contracts you will still have a few days to pull out of the purchase and this is called a cooling off period. In some states it can be 5 days but can vary. Some buyers do this so that they can’t be gazumped but unless you have your finance, pest and building inspections and legal advice on your contract complete by the end of the cooling off you have to make a difficult decision at the end of the cooling off to pull out or proceed but risk needing to pull out of the contract later.
If you do withdraw the contract after the cooling off you will be required to pay a percentage of the purchase price to the vendor which could amount to the full 5 or 10% deposit. It may happen because your finance wasn’t approved, the property wasn’t acceptable to the lender, there was issues uncovered in the pest and building inspection or the solicitor found unacceptable conditions in the contract. Apart from losing your deposit you will also lose sleep due to stress. So, before signing the contract, make sure you are confident that everything is in place. If in doubt seek legal advice from your solicitor or conveyancer.
Keep in close contact with the real estate agent
By law, the real estate agent is required to pass on any offers made to the vendor until the time when the contracts are exchanged. So, if you want to make an offer, make sure you let the real estate agent know. However, the vendor is able to instruct the agent to only advise them of offers above a certain price. So it is important that you are making appropriate offers, otherwise you could be wasting your time.
A verbal agreement is only as good as the paper it’s written on. So don’t take any chances when it comes to purchasing a property and work quickly to being able to lock it in.