Gazumping occurs when you have a verbal agreement
with an agent or seller to buy a property at an agreed price but the property is not sold to you in the end. This usually happens when the vendor (the person selling the property) has decided to sell the property to someone else, usually for a higher amount.
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.
In NSW, 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.
Some ways to protect yourself from being gazumped are:
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.
Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor.
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.
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.
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.
When a property is sold by auction, a purchaser is bound to purchase the property after having made the highest bid at the end of the auction after the property has been placed on the market by the vendor. Gazumping cannot occur in the auction process.