What is gazumping in real estate? How to avoid it?

Gazumping is a term used in the Australian real estate market to describe a frustrating situation for buyers where a seller agrees to sell a property but then accepts a higher offer from another buyer before the sale is finalised. This can happen when the initial buyer believes they have secured the property, but the seller decides to sell to someone else offering a higher price. Gazumping leaves the original buyer disappointed, as they may have already invested time and money in pre-purchase activities like inspections or legal work.

This article will explain what gazumping is and why it happens in Australian real estate. We will explore the legalities surrounding gazumping, how it impacts buyers, and what buyers can do to protect themselves from this unfortunate scenario. Finally, we will provide advice on how to deal with being gazumped and discuss whether it’s a common occurrence in Australia.

What is Gazumping?

Gazumping occurs when a seller verbally agrees to sell a property to a buyer but then accepts a higher offer from another party before the contracts are legally signed and exchanged. In most cases, this situation arises during the negotiation phase when the first buyer has not yet secured the property in a binding contract. Since verbal agreements in real estate transactions are not legally enforceable in Australia, sellers can change their minds and accept a better offer from another buyer.

The key point to understand about gazumping is that it typically happens before contracts are exchanged, which means the initial buyer has no legal claim to the property. While frustrating and disappointing, gazumping is a risk buyers face until the sale is formalised. Understanding the nature of property transactions and the timing of when agreements become legally binding is essential for avoiding the pitfalls of gazumping.

Is Gazumping Legal in Australia?

In most states and territories of Australia, gazumping is legal because verbal agreements are not legally binding until both the buyer and seller have signed the contract of sale and exchanged copies. This legal framework allows sellers to continue entertaining other offers, even if they have given a verbal commitment to a particular buyer. The contract only becomes enforceable once the paperwork is completed, meaning that buyers must act quickly if they want to secure the property.

There are, however, some state-specific rules and exceptions that may offer additional protection to buyers. For example, in New South Wales, cooling-off periods and certain conditions in contracts can give buyers some breathing room after signing. Nonetheless, gazumping remains a reality in most parts of Australia, and understanding the legal process can help buyers move faster and avoid losing out to another offer.

How Gazumping Affects Buyers

Gazumping can have a significant emotional and financial impact on buyers. After spending time and money on activities like building and pest inspections, legal fees, and loan applications, losing out on a property to a higher bidder can be devastating. Many buyers feel misled when they are told their offer is accepted, only to have the property sold to someone else. The experience can be particularly stressful in hot property markets where homes are in high demand, and competition is fierce.

The financial loss can be substantial as well, especially if the buyer has already spent money on pre-purchase services. In addition to the direct costs, gazumping may force buyers to stretch their budget for future purchases, as they may feel pressured to offer more on the next property to avoid being outbid again. This situation can lead to rushed decisions and increase the risk of buyers purchasing properties that may not fully meet their needs.

Why Do Sellers Gazump Buyers?

Sellers may engage in gazumping for several reasons, with financial gain being the most common. If another buyer comes along with a higher offer or better purchasing terms, the seller may feel obligated to accept the more favourable deal. In competitive or booming markets, where property values are rapidly increasing, sellers may receive multiple offers in a short period, making it tempting to accept a last-minute bid that surpasses the original agreement.

Sometimes, real estate agents may encourage sellers to consider new offers after an initial verbal agreement, especially if the higher offer promises a quicker settlement or fewer conditions. While gazumping is often seen as unfair from the buyer's perspective, it’s important to remember that sellers are usually acting in their financial interest. Unfortunately, this creates an environment where buyers are left vulnerable to losing out on their desired property.

How to Protect Yourself from Gazumping

There are several steps buyers can take to reduce their chances of being gazumped. The most important strategy is to move quickly through the buying process by ensuring that financing is pre-approved and ready to go before making an offer. Buyers should also work with their solicitor or conveyancer to prepare contracts in advance, allowing them to act swiftly once an offer is accepted. Exchanging contracts as soon as possible is the best way to secure the property and prevent the seller from accepting other offers.

Another key tip is to negotiate with the seller or agent to include a “subject to no other offers” clause in the contract. This clause ensures that once an agreement is made, the seller is legally bound to stop considering additional bids. While not always possible, adding this clause can provide extra protection and peace of mind. Finally, it’s essential to maintain clear communication with the seller’s agent and confirm that no other offers are on the table before proceeding.

A great way to avoid gazumping is to enlist the services of a top buyers agent like Eden Emerald Buyers Agent. A buyer's agent acts on your behalf to negotiate with the seller, ensuring contracts are exchanged promptly and any potential bidding wars are minimised. They have the expertise to navigate the process quickly, making sure you don’t lose out to last-minute offers. Additionally, they can provide guidance on securing financial approval early, giving you a competitive edge and peace of mind during the property purchase. Speak to an expert buyers agent now by filling out the form below.

What to Do if You’ve Been Gazumped

If you’ve been gazumped, it’s important to stay calm and consider your options before reacting emotionally. First, speak with your solicitor or conveyancer to determine if there are any legal avenues available for recourse. In most cases, however, gazumping is perfectly legal, and the best option is to continue searching for another property. If you are still interested in the same property, you may try to negotiate with the seller, but be cautious not to exceed your budget in a rush to outbid others.

Handling the disappointment of gazumping can be tough, but it’s crucial not to let it influence future decisions. Take the experience as a learning opportunity and continue your property search with a clear plan and realistic expectations. Rushing into a new deal to avoid further disappointment can lead to poor decisions, so patience and persistence are key. Stay focused on finding a property that meets your needs and budget, even if the process takes longer than expected.

How Common is Gazumping in Australia?

Gazumping tends to be more common in competitive real estate markets, particularly in cities like Sydney and Melbourne, where demand often exceeds supply. In such markets, multiple buyers may be vying for the same property, increasing the chances that a seller will receive a better offer after verbally accepting another one. In less competitive regions or during slower market periods, gazumping is less likely, but it can still occur.

Market conditions play a significant role in the frequency of gazumping. During property booms or when interest rates are low, buyer competition can drive up the likelihood of sellers gazumping early buyers in favour of better offers. However, in more balanced markets, where supply meets demand, the risk of gazumping decreases as sellers are less likely to receive multiple competitive offers in a short time.

Conclusion

Gazumping is a legal but frustrating reality in the Australian property market, where buyers can lose out on a property despite believing they have secured it. Although it is more common in competitive markets, buyers should be aware that until contracts are signed and exchanged, there is always a risk that the seller may accept a higher offer.

To avoid being gazumped, buyers should act quickly, organise pre-approval for financing, and work closely with their solicitor to ensure contracts are prepared in advance. You can also use a buyers agent who will deal with negotiations on your behalf, and potentially save you thousands of dollars while also preventing gazumping.

While gazumping can be disappointing, buyers must remain calm and persistent in their property search, keeping their budget and long-term goals in focus. Staying informed and prepared is the best way to navigate the challenges of gazumping in Australian real estate.