“Gazumping” is a term used to describe a situation in which a purchaser has agreed on a price with a vendor, but another purchaser makes a higher offer before formal exchange of contracts takes place on the original deal agreed upon. In a competitive property market, often purchasers find themselves either trying to gazump or being gazumped. What is ethical is dependent on what side of the fence you are on, missing out or being forced to offer more, or being fortunate enough to offer more than the first buyer and getting the vendor to agree. In NSW, if an offer has been accepted by the vendor, but contracts have not yet been exchanged, then other potential purchasers are free to submit offers, and a vendor is free to accept them, cutting you out. This is especially true when making an offer prior to auction. Some agents will freely share information amongst purchasers, so all interested purchasers will know the amounts being offered, whilst others are more discreet, which can make it difficult for purchasers to compete. In most instances one of three things happen if another purchaser makes an offer:
- The vendor decides to honour the original agreement with the existing purchaser (at the lower price).
- The vendor gives the existing purchaser a right of first refusal at the higher price.
- The vendor accepts the new purchaser’s higher offer.
What are the options if a new purchaser makes an offer in respect to the property being purchased? The existing purchaser has a number of options:
- Match the new offer, and exchange contracts unconditionally.
- Offera bit more than the new offer amount, and exchange contracts unconditionally.
- Exchange with a cooling-off period and a 0.25% deposit, which will take the property off the market allowing you time to obtain a loan approval and do your due diligence.
The best way to avoid all of this is to make sure that you are ready to exchange contracts before you make an offer. Closing the timeframe between when the offer is made and when the contracts are exchanged will give less opportunity for other purchasers to step in. Important Disclaimer: The content of this publication is general in nature and for reference purposes only. It is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.