For prospective buyers, it’s a significant relief to finally find a home they have been looking for and agree to the best possible price. Nonetheless, it’s easy to be deceived into thinking that the challenging part is over.
Gazumping, sadly, serves as a big shock for countless buyers all around the country. It certainly does not help when another buyer suddenly snaps up your ideal home as you approach closing your deal. At such times, you may have to restart your hunt for a new home all over again.
All aspiring homeowners should be aware of gazumping because it might just ruin your entire home-buying journey. This blog post will explain what it is, how to avoid it, and how to take financial precautions.
What is Gazumping Exactly?
Gazumping occurs when a seller accepts your property offer but also accepts another (often larger) bid from a different bidder. This causes you to lose the property before you have exchanged signed written contracts; this can occur at any time in the buying process.
Unfortunately, in property sales, the written contract appears only after building and pest inspection, legal checks etc., have been completed. This usually takes a few months after the verbal acceptance.
Meanwhile, if there’s a higher price bid on the property and the seller considers it a more attractive offer, they may reject your offer in favour of the rival buyer.
Gazumping is more common in a rising property market, where the seller backs out if they’re likely to get a better deal. A real estate agent’s job is to work in the seller’s best interest and get the best property deal. Moreover, in many cases, they are legally obliged to present all other offers to the seller until the final exchange of contracts.
Is Gazumping Legal in Australia?
Sadly, gazumping is legal in most parts of Australia. Although the seller may have confirmed your offer, nothing between you and the seller is official until exchanging contracts.
If you browse real estate websites, you’ll notice many houses tagged ‘Sold STC.’ This implies a proposal has been approved, but the sale is still subject to contracts being negotiated upon and exchanged.
The highest rates of gazumping are seen in New South Wales (NSW) and Victoria (VIC). It is not possible in Queensland (QLD) and Western Australia (WA), where offers are legally enforceable.
Gazumping In New South Wales (NSW)
Only once contracts are exchanged between the seller and the buyer, does a property transaction become legally binding in NSW. The contract is exchanged when the buyer and the seller have signed their respective papers. A deposit from the buyer, often 10% of the total cost, is customary at this point.
Suppose you are gazumped on before exchanging contracts. In that case, neither the agent nor the seller is obligated to reimburse you for any fees you may have paid for inquiries, inspection reports, legal counsel, or other charges related to a financing application.
Gazumping In ACT
The ACT Supreme Court used the territory’s anti-gazumping legislation to direct the sellers of a unit in the New Acton development to reimburse a potential buyer who backed out of the contract for their deposit.
In this instance, gazumping was not an issue. However, it violated the law that was put in place to stop gazumping.
This practice had become so prevalent in Canberra’s hot residential market that the government interfered with the law. In principle, it did not outlaw gazumping. But, requiring the seller to physically attach all relevant documents, i.e., certificate of title, etc., to the contract, the legislation aims to reduce the possibility of gazumping.
Gazumping In Victoria
In VIC, you must write and sign a contract when making an offer on a property. However, agents have the right to ‘gazump’ you even after the contract is signed.
Also known as ‘shopping the offer,’ agents use the offer by the original buyer as leverage to encourage a rival buyer and sell to the highest bidder.
How Prevalent Is Gazumping?
Though it may sound unbelievable, gazumping is legal across most of Australia, even though it is somewhat of a grey area. However, it is happening more frequently now because of the fierce competition in the property market.
Home buyers try to outbid an accepted offer to purchase a dream home already under contract. Only in Queensland and Western Australia has gazumping come under the scanner.
In Queensland, an agreement to purchase a home is legally binding once the buyer makes a formal, written offer and the seller accepts it. Although exchanging contracts is still mandatory to transfer ownership, it’s unnecessary to prevent gazumping. Therefore, other buyers cannot approach the seller after they have agreed in writing to sell the property to you.
Likewise, in Western Australia, the offer and acceptance system prevails, where once the buyer and seller have accepted the offer in writing, it is binding.
Understanding Gazundering: The Opposite Of Gazumping
Gazundering - the opposite of gazumping - happens more when there are more sellers than buyers in the real estate market.
Once the seller accepts an offer from a buyer, the seller can then move forward with the sale. After receiving the buyer’s request, they might decide against scheduling any more viewings.
Gazundering occurs when the buyer dramatically lowers their bid close to the exchange of contracts. The buyer makes this move, expecting the seller to cave in and lower the sale price rather than restart the entire process.
The choice is between accepting the lesser bid, which would require the seller to cover any deficit on associated purchases, or rejecting the offer and relisting the property. Remarketing the property would put the seller’s connected investment in danger if no new buyer could be found. Because this can affect the entire property sale chain, sometimes the seller gets ‘gazundered.’
How Does Getting Gazumped Affect You?
For home buyers, gazumping can be a significant issue. Buyers who have plans for their dream home may discover they must start over and search for a new home.
Buyers frequently find themselves considerably out of cash if they are gazumped. In addition, as the exchange of contracts occurs very late in the sales process, buyers need to spend on building and pest inspection, secure a loan, and pay the attorney for local searches.
Gazumping other buyers may be dishonest. For example, they can submit a better offer on a home and then withdraw it just before closing. In other words, gazumping may turn into gazundering.
Also, sellers often aren’t aware that gazumping might also be an issue. Gazumpers can make offers that are too high or beyond the property’s value. The transaction might thus fail if they are unable to raise the necessary funds.
Real Estate Agent And their Contribution To Gazumping
Some individuals think that some real estate agents actively promote gazumping. However, it is simple to understand how and why this can be the case. Real estate agents on commissions stand to profit if they discover a gazumper who is interested in paying more than has previously been negotiated.
While estate agents are legally required to present all offers to sellers and, for that matter, to get in touch with them regarding new viewing requests, what occurs next depends on how the estate agent and the seller interact.
The seller’s next move can be influenced if the estate agent aggressively promotes additional viewings or makes convincing arguments for fresh bids. However, if the estate agents are against gazumping, they can persuade the seller to reject further viewings or a new offer.
Most estate agents will claim that they do not support gazumping and may even have a policy against it. However, the vendor ultimately has the last say.
Best Practices For Avoiding Gazumping
Joust provides some practical suggestions on reducing the possibility of gazumping when purchasing a house and dealing with it if it occurs.
Seek Help Beforehand
Finding the correct attorney and inspector may take some time, as anybody who has been through the route is aware, so it is advisable to arrange everything as soon as possible! You might start by looking for further information and recent reviews and asking family members and acquaintances who they have previously hired.
An In-Principle Mortgage
It will help if you get pre-approval for your mortgage or home loan before submitting an offer on the house. This doesn’t include a confirmed mortgage, but it can accelerate the process because the seller and real estate agent can see that you have a strategy for the money.
The objective is to give it as short as time between the offer and the unconditional exchange. This lowers the chances of rival buyers getting an opportunity to make a counteroffer or the vendor having a change of mind.
Request that the Seller Remove their House from the Market
Another strategy to prevent gazumping is to include a request in your offer that the seller removes their home from the market. Although it’s not a surety, it will reduce the likelihood of competing bids.
This is a common practice, and vendors are often delighted to do so. If they are not, this may be a cause for concern.
You could agree to an exclusivity contract. This is a legally enforceable agreement wherein the seller promises not to speak with any other party for a predetermined time. You will thus have more time to complete the trade and less need to worry about getting outbid.
Typically, a deposit is paid, and the payment is lost if either party cancels before the exclusivity period has expired. However, it’s essential to ensure you don’t spend too much time negotiating this agreement because your time and energy would be better spent moving the acquisition forward.
Fight Off the Gazumper
Before making additional bids or purchases, you must ensure you can afford the house. With a higher bid, you can try to reclaim the property after it has been gazumped, but be wary that this may spark a bidding war.
Exchange Contracts Quickly
Exchanging contracts is the ultimate goal of a buyer when trying to avoid being gazumped. This is the point of no return for the seller, while the buyer has the cooling-off period to pull out. The house is off the market, so should you pull out, you’ll have to pay a certain percentage to compensate for the inconvenience.
Seek Expert Advice
Once you receive the sale contract, forward it to your conveyancer or solicitor. This will help avoid potential misunderstandings and ensure the cooling-off period is in place.
Likewise, working with a buyer’s agent with a close relationship with reputed real estate agents will help you make an offer at the right time. In addition, it will also help you make the most of the situation and minimise your chances of being gazumped.
Get Inspections and Approvals
Make the most of the cooling period to get the necessary building, pest inspection, and structural issue checks. After all, every buyer wants to gain ownership without being gazumped. At the same time, there shouldn’t be any compromise on safety.
Buy at Auction
Minimise the possibility of getting gazumped by making an offer at an auction. If you are a successful bidder, you have an enforceable contract. The seller can only back out if they demonstrate that the auction was not conducted fairly.
Keep Your Deposit Ready
Similar to pre-approval, minimise the possibility of getting gazumped by having your deposit ready. Again, this signals to the seller that you’re a serious and committed buyer, which makes it less likely that they will entertain other offers.
Our online mortgage calculators can help you find the comparison rate, check your borrowing power, calculate monthly repayments and more. Planning your finances will help make buying a home much smoother.
A Section 66W (s66W) Certificate is a document signed by a lawyer or conveyancer working for the buyer, effectively waiving the buyer’s right to a five-day cooling-off period. Section 66W of the Conveyancing Act of 1919 contains the conditions for a valid certificate, therefore the title.
As a buyer, you will have to pay the full deposit (usually 10%) once the contracts are signed. Before submitting the s66Wto the seller, your solicitor must discuss the terms of the waiver and ensure clarity of all the conditions before signing it.
When the subject property has several potential bidders, it is typical for a vendor to obtain an s66W certificate. Since the buyer has no right to a cooling-off period, the vendor ensures that the property has been sold by demanding the s66W certificate.
In a nutshell, an s66W certificate is typically advantageous to sellers who want to complete the sale process quickly. Furthermore, it helps the buyer secure a property in a competitive market.
On the other hand, you cannot cancel your offer by offering to waive your buyer’s right to a cooling-off period. Doing so will result in liability for the total deposit amount on the home.
The decision to use the s66W certificate ultimately rests with the buyer. Therefore, taking your solicitor’s advice before proceeding with the waiver is advisable. In addition, speaking with an experienced buyer’s agent will help you make an informed decision.
The Joust Online Home Loans MarketPlace
House hunting can be a challenging experience. Over and above, the threat of gazumping can make it an emotional rollercoaster.
Working efficiently on securing a home loan can help avoid the pitfalls of this process.
Our Instant Match tool can connect you with suitable lenders in just minutes. Available exclusively on our safe and secure online platform, it is a great way to start your home loan journey.