‘Gazumping’ fears arise in Sydney: 13 tips to protect unlucky buyers

Fears of being gazumped are on the rise in Sydney as buyers face increased competition for properties in the improving market.

Gazumping occurs when a buyer has a verbal agreement with an agent or seller to buy a property at an agreed price but the property is sold to someone else for a higher price.

The incidence occurs in private treaty sales or when offers are made prior to auction. Auctions are binding sales and therefore absent of gazumping.

Raine & Horne CEO Angus Raine says rebounding values could result in greater incidences of gazumping.

“Already I have received my first telephone calls from consumers beaten to the punch for a property, and this is historically a sign the market is hotting up,” Raine advised last month.

“In NSW, a home is still for sale until a prospective buyer and a vendor have exchanged contracts, and a deposit, which is usually 10% of the purchase price, has been paid.”

To avoid missing out, Raine advises aspirant buyers to familiarise themselves with the steps involved in buying a property.

“I’d also urge committed buyers to be quick to exchange contracts and pay a deposit, once they hit upon a suitable, well-located home, for the right price,” he says.

REINSW CEO Tim McKibbin says gazumping occurs more in “hot markets” where there is a shortage of property and there is greater competition among buyers.

He told News Limited weekend papers that buyers could protect themselves from gazumping by should ensuring contracts were signed as quickly as possible by both parties or to buy at auction.

NSW Fair Trading stresses that a property sale is “generally only binding on the vendor and buyer when contracts are exchanged between the two parties”

“Exchange occurs when the vendor signs their copy of the sale 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% of the purchase price,”

“If you are gazumped, neither the agent nor the vendor is obliged to compensate you for any money you may have spent on legal advice, inspection reports, finance application costs or inquiries. However, your ‘expression of interest’ payment (if you have paid one) must be refunded to you in full” says Fair Trading in a special page on the topic on its website.

Real estate consumer advocate Neil Jenman warns buyers not to get their hopes up until a contract has been signed

“Buyers can count on nothing being certain until the sellers sign a legally binding contract. Between the time the sellers verbally agree to sell and the time they sign the contract, lots of things can happen. The sellers may get a better offer, they may decide not to sell or they may decide to increase the price,” he writes.

Tips from Neil Jenman to prevent being gazumped:

1. Consider making their highest offer rather than lowest offer and be prepared to walk away if they lose out. “It is tragic to lose the home you love because you bluffed too hard,” he says.
2. Try to meet the sellers. “It is hard for sellers to gazump you if they know you and like you and if they believe you have been fair with them”.
3. Insist that the agent informs you if another buyer offers more.

Raine & Horne tips to avoid being gazumped

1. Have your finances pre-approved before making an offer
2. Obtain a copy of the Contract of Sale promptly, and pass it to your solicitor or conveyancer
3. Research your market so that you can be confident of putting forward a winning offer – then be prepared to move quickly to exchange contracts
4. Put an offer in writing – the law requires real estate agents to present all offers to the vendor
5. Signing a cooling-off period gives buyers time to organise a building and pest inspection without being gazumped. However if you don’t proceed, you will forfeit 0.25% of the purchase price to the vendor.

NSW Fair Trading tips for buyers to avoid being gazumped

1. Always have your loan finance pre-arranged, and ensure you can pay the 10% deposit, by Bank Cheque or a deposit bond so there is no delay before attempting to exchange contracts on a property.
2. Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor.
3. Seek to exchange contracts with the vendor as soon as possible. Anyone puchasing residential property has a five-day cooling off period commencing from the time of exchange of the contracts. Only the purchaser can waive the cooling off period and it can be extended by agreement. During this time, you can do a building and pest inspection and have the contract examined. However, if you rescind the contract during this period, you forfeit .25% of the purchase price to the vendor, as the property has been taken off the market for a period of time. The amount forfeited is recovered from the deposit you paid under the contract. If the amount of the deposit is insufficient, you will have to provide the necessary additional funds. You should find information relating to the cooling off period in your contract.
4. Negotiate firmly with the vendor or real estate agent. Insist on the agent passing your bona-fide offers to the vendor and obtain written proof of this occurring. The law requires agents to do this. Be ready to exchange with a signed copy of the contract and follow through on the exchange process yourself or with another trusted person to ensure exchange. If you are advised that other offers have been made, demand to see written evidence. If you are certain that you want the particular property, be ready to possibly increase your purchase offer to the vendor.
5. Be aware that the vendor is not generally compelled to sell to any specific person and can change their mind at any time prior to the exchange of contracts. Vendors may not necessarily sell to the highest offerer, but may accept a lower offer from a prospective purchaser.