I’ve always found the word “Gazumping” to be a pretty funny word. Where did it come from? Why does it mean what it means?
Despite my fascination with the word, unfortunately, in a seller’s market, gazumping can happen to you. What is it? Well, it’s what happens when you have a verbal agreement with a real estate agent about the price of a property that you want to purchase, and then bam, in the next week, when you’ve figured out your finance, and gotten maybe some legal advice, the real estate agent says to you:
“Sorry, someone else offered a higher price, and the vendor’s accepted their offer”
Despite having a verbal agreement, you can’t enforce that agreement. If you’ve spent some money on getting pre-purchase inspections, or some legal advice, you’re out of pocket. The vendor has no obligation to refund you for any costs that you’ve incurred – just because you’ve got a verbal agreement doesn’t mean that it’s binding.That being said, if you paid some sort of “expression of interest” fee to the vendor – that must be refunded.
In New South Wales, a contract to sell or purchase property is only binding between the parties if a specific process has been followed. This is where:
- Two contracts are issued, one to the purchaser and the other to the vendor
- The parties each sign their copy of the contract
- The parties each exchange their contracts – the purchaser holds on to the contract that the vendor has signed, and vice versa
It is also usual that during this time, the purchase gives a deposit of 10% to the vendor (or their real estate agent).
You can’t really protect yourself against gazumping unless the contracts have been signed and exchanged – but you can certainly minimise it by:
- Making sure that your finance is ready, and that you don’t need some extra time to arrange for it
- Minimising any delay between the offer and exchange of contracts, such as getting the contract asap so that your solicitor can examine it, or getting your pre-purchase inspections done as soon as possible.
That being said, you shouldn’t rush this decision by just going ahead and signing and exchanging the contract. You should always carefully consider everything before signing and exchanging the contract – because if you decide at a later stage to exercise your cooling off, that will result in you forfeiting 0.25% of the purchase price.
When purchasing property, you must strike a balance between being cautious and making sure that you’re satisfied with the property before signing the contract, and acting swiftly to make sure that nobody else gazumps you.
Our experienced lawyers understand you fully when it comes to these things, and where possible, will give you speedy advice to help you with your purchase.