Unfortunately yes, it is legal in NSW to gazump a buyer. So what does that mean besides heartbreak for the buyer.
Gazumping is when an offer to purchase a property is verbally accepted by the agent or vendor although contracts have not been signed yet, then the property is sold to someone else, usually at a higher price.
Gazumping is something that happens when you have made an offer to purchase the home, which is then verbally accepted by the agent or vendor but later the agent has accepted another offer from another buyer, usually at a higher price. You could then put in a higher off but now this type of negotiating usually ends up with someone paying too much. For anyone buying a property it is so important to know that until a deposit is paid and contracts are signed and exchanged there is no binding agreement. Some buyers think that as the agent has asked them for a nominal ‘deposit’ such as $1000, the property is automatically going to be sold to them. Not so, I explain to all my clients that this holding deposit may show good intention to buy, but cannot protect you from still losing the property. It’s a heartache to find this out the hard way.
So how do you protect yourself from being Gazumped?
- Make sure you have your loan finance pre-approved before making an offer so that there is no delay once you have found a property ie be ready to pounce!
- Obtain a copy of the contract and provide it to your conveyancer/solicitor immediately.
- Seek an exchange of contracts as soon as possible and pay the 0.25% deposit.
- All residential property purchases have a 5 business day cooling-off period after exchange which gives you time to order any reports required. However, if you rescind during this period you forfeit the deposit.
- Gazumping cannot happen at an auction as contracts are signed immediately and deposit paid.
Is Gazumping legal?
Yes, it is legal. All sales agents have an obligation to present to vendors all offers that are made before contracts are signed and exchanged as well as to act in the best interest of its clients at all times. This obviously includes presenting any higher offers that are made if contracts have not been exchanged, even if they have verbal acceptance of a previous offer. It also has the benefit of possibly increasing any commission an agent is to be paid, thereby further motivating the agent.
Until the contracts are signed, exchanged and a deposit paid, the vendor and agent is free to entertain any other offers. Buyers agents cannot prevent our clients from being gazumped but I have found that when an agent knows the buyers have engaged a buyers agent they do tend to know that the buyer will be well guided through the process and the unlikelihood of the buyer not being able to proceed to exchange is usually nominal.
