Buying property – what is gazumping
Gazumping – it sounds like something out of a Dr Seuss book, not something that happens in real estate. You might be hearing the term more and more given the frantic property market we are experiencing. We break down what gazumping means and what you can do about it.
Gazumping occurs when a vendor accepts a better offer on property, after already accepting an offer from someone else. It’s an issue that really only rears its head where there are more buyers in the market than there are properties for sale. In city markets like Sydney, gazumping is simply part of the landscape – something that buyers need to be aware of and take steps to manage. In the United Kingdom, gazumping is such normal issue that home buyer protection insurance exists to protect buyers from the expense of being gazumped.
Gazumping is not illegal. Agents are usually obliged to take every offer to the vendor up until contracts are exchanged. It’s hard to blame the vendor for accepting a higher offer, especially when the offer isn’t just more money but a better offer all round, for example a shorter settlement, no conditions etc.
Regional Australia’s property markets have not seen widespread gazumping until very recently. Up until the latest property boom, only the most sought after properties have attracted bidding wars. Now though, most sectors of the market are seeing gazumping.
What can I do to protect myself from gazumping?
Ideally, have your finance unconditionally approved (or as close to approved as you can). It is also a good idea to have the number for your preferred pest and building inspectors ready as soon as you start looking for a property. You should also have your deposit ready to pay as soon as you make an offer on a property. Paying the deposit doesn’t necessarily lock the vendor in to selling the property to you, but it does show them you’re serious about buying. You can also get a copy of the listing contract from the agent and do a pre-purchase contract review with your lawyer. If you do all these things, you can make an offer knowing you’re in the best position to exchange quickly.
Use your cooling off period
Put some dollars on the line. It’s common in city markets for purchasers to exchange contracts before doing all their due diligence and inspections and before their finance is approved. In these cases, you can use your cooling off period, normally 5 days unless negotiated to be longer, to pull out. Remember, if you do pull out, you will lose 0.25% of the purchase price, plus any money you’ve spent on inspections and contract review. Particularly when the market is running hot though, you might need to risk some dollars to get the property you’re after.
Use gazumping to your advantage
Let the gazumper become the gazumped! Provided you have the stomach for some hard ball negotiations, you have room to move in your budget and the contract on the property hasn’t exchanged , you can always attempt to level the playing field with a better offer of your own.
Don’t panic. Live to buy another day
Finally, if you’ve been gazumped and the offer you have made is at the top of the scale of what you’re prepared to spend on that property, don’t stress. You’re better off having the opportunity to buy the next property that ticks your boxes than entering into a contract that you either can’t complete, or don’t want to.
Before you start seriously looking, drop in or call the office for a chat with us about the best strategy for you. We love property and will always make time to talk through the ins and outs of it all with you.
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