What Is Gazumping and is it Legal?

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Joel Mayer is an Australian freelance writer and blogger. He writes professionally and for fun across a wide range of niches. He enjoys sharing his knowledge with others and collaborates with few companies and writes reviews.
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Sydney’s real estate market is “hot”! Prices of median houses increased by 15% last year and in some suburbs it even raised to 27%. As of April 17 of this year home values in Sydney increased by 5.48% as compared to last year according to the RP Data weekly Australian house price update of Macro Business. Unfortunately, along with the improving market comes the rise of gazumping, a practice which is legal but not exactly moral.

Gazumping – How is it done?

But, what exactly is gazumping or what does being gazumped mean? Gazumping is a practice where a seller offers a property to one buyer or real estate agent at an agreed price and both parties verbally agreed to the sale, however, the seller turns around and sell the same property to another buyer for a higher price before a contract of sale has been executed. And this is a prevalent practice in times where there are more buyers than sellers in the market and there is a stiff competition among buyers. Changing one’s mind is not a sin, but it becomes inconvenient to the first buyer who either has to put out for the higher cost of the house or lose the house they have set their heart to altogether. This is, if the first buyer is given a chance to equal or maybe even offer a better price than the new price.

Execution of Gazumping:

In Sydney, a property sale is valid only once the sales contracts have been executed, signed by both parties and exchanged. Gazumping usually occurs before

the property is auctioned out or in a private treaty sale. It can’t happen in an auction since a sale via an auction is legally binding.

In the event that a buyer is gazumped, he cannot expect to be reimbursed for expenses he has already made such as finance application costs, inspection report costs, legal costs and more. However, a gazumped buyer has to be reimbursed for the earnest money he has paid as proof of his good faith and interest to buy.

How to avoid being gazumped

There is no sure way to avoid being gazumped, but a buyer can exercise due diligence to at least protect himself from being a victim of gazumping:

  • Be conversant with the real estate buying and selling process and conduct a market review thoroughly with the help of a reliable estate agent so that the offer made is a sure winner.
  • Have the financing ready by having a loan pre-approved and the 10% deposit on hand or a deposit bond ready.
  • Buy from an auction as much as possible.
  • Put down the offer in writing  and insist on having this offer passed on to the vendor by requiring the agent to show written proof that the offer has been received. There is a legal requirement on agents to present all offers to the seller.
  • Make a reasonable offer rather than make the lowest offer. There is a higher risk of being gazumped with a low offer.
  • Buyer should insist that the agent show them other offers.
  • Get a copy of the sales contract immediately; have it processed by a legal counsel and ready for signing.
  • Attempt to swap signed contract with the seller as soon as possible.