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Published January 17, 2024
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What Does Gazumping Mean When Buying a Property?

Gazumping is when a buyer’s verbally accepted offer is discarded in favour of a higher offer.

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Making an offer on a property, which is then accepted by the seller, does not, unfortunately, guarantee that it is a done deal. In Australia, for a property transaction to be binding, both the buyer and the seller need to exchange written contracts they have both signed. Until then, you may encounter the problem of gazumping.

What is gazumping?

Gazumping is where the seller, or the real estate agent acting on the seller’s behalf, verbally accepts an offer, only to sell the property to someone else for a higher price at some point down the track. It can be highly tempting for a seller to hang out for a better offer, especially in a hot property market where demand is huge.

Estate agents derive their income from sellers, taking a percentage of the sale price. As such, they are often blamed for gazumping, which is often viewed as a way of extracting every last cent out of a buyer. However, the agent is bound to do what the vendor wants and to act in their best interests. The agent is also legally obliged to pass on to the seller all offers received until contracts are exchanged.

Still, using your offer as leverage to obtain a better price from another buyer could still be regarded as highly questionable behaviour.

» MORE: What is an expression of interest?

Is gazumping legal in Australia?

Gazumping is legal in most areas of Australia. If you are planning to make an offer on a property, you should talk to your solicitor or mortgage broker. They can explain how gazumping laws may apply to you. Then, aim to exchange contracts as soon as possible to avoid any potential disappointment.

Gazumping probably has been around since people first started buying and selling property. It’s a tactic that is increasingly popular when properties are in hot demand and competition for them is fierce. 

Unfortunately, agents are obliged to obtain the best possible price for their customers. So, until you have a signed contract, there’s nothing stopping them from going to another buyer who’s willing to pay more.

What rights do you have as a buyer if you’re gazumped?

Prior to the exchange of contracts, agents are required to ask the vendor if they’re happy to take what they’ve been offered or if they want to wait for a better offer. As the buyer, it’s probably a good idea to make the best possible offer, especially if there’s competition for the property.

There may be some legal grey areas, but gazumping is generally legal. There is a fine line between being gazumped and what agents would describe as a healthy level of competition for a property. 

Once you’ve been gazumped, there is little you can do. And neither the agent nor the seller is obliged to compensate you for any money you may have spent on legal advice, inspection reports, finance application costs or enquiries. The way things stand, the vendor is not generally compelled to sell to any specific person. They can change their mind at any time prior to contracts being exchanged. 

» MORE: What does ‘under off’ mean?

Ways to protect yourself from being gazumped

You can do a few things to protect yourself from gazumping.

Pre-arrange your loan finance

Once you’ve received pre-approval for a loan, you have a shorter wait time to obtain your funds. This could hasten the time involved in exchanging contracts and provide less opportunity for another buyer to deprive you of your dream home. Also, ensure you can pay the agreed-upon deposit amount when you obtain the relevant certificates. That’ll allow the exchange to happen as quickly and painlessly as possible. 

Obtain a copy of the contract ASAP

Obtain a copy of the sale contract as soon as possible so your solicitor or licensed conveyancer can examine it for anything that needs to be changed. Also, as a purchaser of residential property, you have a cooling-off period of up to five days — typically after exchanging contracts. Only the purchaser can waive the cooling-off period, in case you’re worried about jumping in too quickly. Remember, the trick is to shorten the entire process so other buyers can’t get a foot in the door and gazump you.

Negotiate firmly with the vendor’s agent

Negotiate to show how much you want the property so they are aware and are more likely to come back to you immediately with any counter offers. Also, negotiate ways to expedite the process if at all possible. The vendor may want a quick sale for whatever reason, for example, so you could offer a shorter settlement time that the agent could then take to the vendor. 

Work with a buyer’s agent

Unlike the vendor’s agent, a buyer’s agent will work with you and keep your best interests in mind. They can also assist you with financing pre-approval and due diligence on the property. Just be aware that they will charge you for their services, unlike mortgage brokers, who may also be able to assist in such circumstances for free.

Prepare to increase your offer

If you are certain you must have the property and you’ve done your sums, you may be able to offer more if that’s what it takes. Remember to be disciplined with your borrowing and not get carried away. An extra $20,000 now equates to a lot more over 30 years of a mortgage.

Buy at auction

Finally, buying a property at auction rather than going through a private treaty guarantees you won’t be gazumped because the property goes to the highest bidder (as long as the reserve price is met). Therefore, there’s no such thing as the seller looking for another buyer willing to pay more after an auction. And there’s no cooling-off period after an auction, either.

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