Gazumping: What You Need to Know

What Is Gazumping?

Understanding Gazumping in the NSW Property Market

Gazumping occurs when a seller or agent accepts your offer to purchase a property at an agreed price but ultimately sells the property to another buyer who offers more. In NSW, the sale of a property only becomes legally binding when contracts are formally exchanged. Before the contract exchange happens, the seller is allowed to accept a higher offer, which is why gazumping remains a risk until both parties have signed their contracts and the contracts have been officially exchanged.

This phenomenon is particularly prevalent in the Sydney real estate market. Competition can be fierce in some areas, particularly those with limited stock available. Multiple buyers may be vying for the same home.

It’s worth noting that gazumping is perfectly legal, albeit disheartening and no compensation is offered for any costs incurred during this process. This can include expenses such as legal advice, inspections, or fees associated with organising finance.

How the Exchange of Contracts Works in NSW

In NSW, a property purchase becomes binding when contracts are exchanged between the buyer and seller. This process involves the seller signing their copy of the contract, and the buyer signing theirs. Then the real estate agent or conveyancer / solicitor exchange the two signed documents. Often, the buyer pays a 10% deposit at the same time of exchange to secure the agreement. Until this point, the property remains open to other potential buyers, allowing the possibility of gazumping.

Why Does Gazumping Occur?

A Competitive Housing Market

A competitive housing market is one of the primary reasons why gazumping happens. With high demand for homes and limited supply, sellers are often presented with multiple offers. Naturally, the vendors lean towards a higher offer even after initially agreeing to another. The legal framework in NSW permits this practice, as nothing is final until contracts are exchanged.

Handling of Contracts

Another reason gazumping occurs is the delay in exchanging contracts. Once a seller verbally accepts an offer, there can be a gap between this acceptance and the formal contract exchange. During this delicate and often highly emotional charged period, other buyers can swoop in with better offers. Not surprisingly, leaving the initial buyer feeling blindsided.

Emotional and Financial Impact of Gazumping

The Emotional Toll on Buyers

Experiencing gazumping can be emotionally draining, especially if you have already started envisioning a future in the home you thought was yours. For families, it can be particularly distressing to think about having to start the entire search process over again. Especially after investing time and energy into finding a property that suits your family’s needs.

The Financial Implications

Gazumping isn’t just emotionally taxing; it can also be financially costly. Buyers often spend money on various pre-purchase requirements, such as building and pest inspections, legal consultations, and finance arrangements. Unfortunately, if you get gazumped, there is no obligation for the seller or agent to compensate you for these costs.

Get the Contract Reviewed Promptly

Obtaining a copy of the sale contract and having it reviewed and agreed changes requested by your solicitor or licensed conveyancer as soon as possible. Being ready to proceed without hesitation helps prevent potential complications from arising later on.

Negotiate Firmly and Be Proactive

It’s important to communicate your genuine interest in the property to the seller’s agent. You may also wish to request written confirmation that your offer has been passed on to the vendor. Bear in mind, agents are not legally obligated to provide this. Being proactive in your communication shows your commitment to buying the property and may discourage the seller from considering other offers.

Be Prepared to Adjust Your Offer

In some cases, the reality is that you may need to be flexible with your offer. If the seller receives another offer higher than yours, you need to decide whether you are willing to increase your offer to secure the property. While it’s not always advisable to get caught in a bidding war, understanding your budget and being prepared to make adjustments quickly can sometimes make the difference in closing the deal.

Use a Buyer’s Agent

One of the best ways to reduce the risk of gazumping is to engage a buyer’s agent. A buyer’s agent is experienced in navigating the competitive property market and can act on your behalf to ensure that your interests are protected. They can help speed up the process, negotiate firmly with the seller or agent, and manage all aspects of the exchange to reduce the risk of being gazumped.

How Future Habitat Buyers Agency Can Help

Buying a home in Sydney can be challenging, especially in a market where gazumping is allowed, and it does happen! At Future Habitat Buyers Agency, our buyers agents understand how emotionally and financially draining this process can be, and we’re here to help guide you through it. With our many years, and hundreds of purchased homes behind us, we can ensure that every step of the buying process is managed efficiently and effectively. Thereby, reducing the risks associated with gazumping. Our goal is to make your journey to finding a home you’ll love as smooth and stress-free as possible.

Final Word

Gazumping is a harsh reality of the competitive Sydney real estate market, and it can be both emotionally and financially challenging for buyers. The uncertainty that comes from having an offer accepted only to lose the property to a higher bid is disheartening, especially after investing time and resources into the process.

While gazumping is a risk, there are proactive steps you can take to protect yourself. Acting swiftly, having your finances ready, and ensuring timely contract reviews are essential to minimise delays. Staying engaged in the process and being flexible with negotiations can also help you secure the home you want. By understanding the complexities of the market and being prepared, buyers can significantly reduce their chances of being gazumped and continue their journey towards finding a home you’ll love.

Disclaimer: The content of this article is intended for informational purposes only and should not be considered financial or real estate advice. Readers are encouraged to consult with professionals for specific guidance tailored to their personal circumstances before making any property purchase decisions.