Is Gazumping Illegal? It’s a Common Question

18th May, 2018 | First Home Buyer, Investor

In this article:
Surely it can’t be legal for another buyer to snatch away the property you’re about to buy?

The sales contract is signed, and the deposit paid. The building and pest inspections are complete, and you’re not far off exchanging contracts. The phone rings, and it’s your real estate agent telling you the vendor has decided to sell to another buyer. You’ve been gazumped. 

Shock turns to anger, and you wonder how gazumping can be allowed. After all, isn’t it akin to stealing?

It might seem like stealing, but a property sale is only legally binding when there is an exchange of contracts. So even though you may have a verbal agreement, or have signed the contract and paid a deposit, the property isn’t yours until contract exchange occurs between both parties. Exchanging contracts is when both you and the seller each sign one copy of the contract and then swap with each other.

In most states of Australia, gazumping is legal. In the ACT, anti-gazumping laws require sellers to have all relevant documents attached to the contract. But even then, the time lag between offer and contract exchange can make it possible for the seller to accept an offer from another buyer.

It’s more common to see gazumping occur when the market is moving upward, and competition is rife. There’s no gazumping when a property is sold at auction because the buyer is the highest bidder on the day and there’s no cooling off period.

Apart from sticking to auctions when you buy a property, there are several other ways you can protect yourself from being gazumped. 

We have you covered on all stages of your property journey

Organise your finance

Be proactive about getting home loan pre-approval. Don’t wait until after you’ve made an offer on the property, organise your finances before you start house hunting. Not only does it send a clear message to the seller that you’re serious about buying the property, it also speeds up the time it takes to exchange contracts. Speak to your Yellow Brick Road representative about what documents you’ll need to supply for a home loan pre-approval.

Move quickly

Make it your priority to get a copy of the sale contract to your solicitor to review. Put a timeframe on your offer, such as by close of business that same day. If it’s a reasonable offer, based on research of sales of comparable properties in the area, there’s less chance another buyer will gazump you.

Have your ducks in a row, including finance approval and due diligence, to ensure there is minimal delay between making an offer and exchanging contracts.

Take inspections seriously

Building and pest inspections can happen before or after the contract is signed depending on which state or territory in Australia you are buying property.

If you decide to make your offer subject to a satisfactory building inspection, look at the wording of the clause before you proceed. You may find that the clause only allows the buyer to get out of the contract if the report identifies a major structural defect.

Stand your ground

If the real estate agent is threatening to gazump you with a supposed ‘higher offer’, ask them for written proof of the offer. You may find there is no other seller, but instead the agent is trying to scare you into making a higher counter offer.

Some buyers request a due diligence clause to be inserted into the contract, as a special condition to push for a speedy exchange of contracts. 

The clause makes the contract conditional upon the buyer bringing in a building consultant to write up a report on the property’s condition. Should the results not be satisfactory, the buyer may terminate the contract. 

While a due diligence clause can work well for development sites and commercial properties where there is limited competition, they are less common in the residential property market where sellers are often unwilling to grant buyers such wide rights to terminate.