Gazumping – It’s legal in NSW.
‘Gazumping occurs when you have a verbal agreement with an agent or seller to buy a property at an agreed price but the property is not sold to you in the end. This usually happens when the vendor (the person selling the property) has decided to sell the property to someone else, usually for a higher amount.
If you are gazumped, neither the agent nor the vendor is obliged to compensate you for any money you may have spent on legal advice, inspection reports, finance application costs or inquiries. However, your ‘expression of interest’ payment (if you have paid one) must be refunded to you in full.
In NSW, a property sale is generally only binding on the vendor and buyer when contracts are exchanged between the two parties. Exchange occurs when the vendor signs their copy of the sale contract; the purchaser signs their copy, and the two parties ‘exchange’ their signed contracts. It is usual at this time for the purchaser to pay a deposit, usually 10% of the purchase price.’ Department of Fair Trading NSW.
Just last week, a client I was working with was gazumped. We had an offer and an acceptance (verbal) but before the solicitors exchanged contracts (there were some conditions that were important to add to protect the client) the agent rang me and said he/she had another offer and it was higher, and we needed to make a further, obviously higher offer, if my client still wanted the property. Now here I add, it is perfectly legal for the agent to do this, he/she is working for the vendor, and they are paid (commission) to sell the property at the highest possible price and with the most suitable conditions for the vendor.
Therefore, to avoid this disappointment, ask the agent BEFORE you put in any offer what are their practices regarding verbal acceptance offers. Some agents will say clearly that they have discussed with the vendor that a verbal offer is as good as a hand-shake and the vendor will not seek further higher offers. In our case last week, the agent make it very clear that until exchange takes place he/she will continue to keep the property on the market and will continue to accept and put forward higher offers. We knew where we stood, and we knew we needed to move quickly, but at the same time, not foolishly. To pay sometimes a higher price than originally accepted and to rush your purchase before doing your due dilligence could potentionally cost you thousands of dollars. (The vendor wanted the client to waive the cooling off period). So don’t be pushed, still take your time, and should you lose that propety, it may be better in the long run, than end up with a property that is a financial disappointment. Another property will always come on the market.