Gazumping: What is it and how to avoid it

Gazumping is one of the most frustrating things that can happen to a prospective home buyer, but what is it, how does it happen, and what can you do to avoid it?

Picture this: the big day is finally here, and you’re ready to put an offer in on your dream home. You’ve spent every Saturday morning for months going to open houses, caffeinated beverage in hand, game face on, fending off crowds of other eager buyers. Finally, you’ve found it – the one. It’s the perfect house in the perfect suburb – your own little corner of the Australian dream.

As you stroll through the property, which already feels like home, you shoot the competition a look that says, “Back off, buddy, this modern kitchen with a tasteful subway tile splashback is MINE!” You put in your offer, and a few days later, you’re thrilled to hear that it’s been accepted! Now you’re on the home stretch – you’ve agreed on a price and just need to sign the contracts, and everything seems to be in order.

Then, just as you’re daydreaming about hosting a barbecue on your fancy new deck and taking in the city views, disaster strikes. Your phone buzzes, and you see that it’s the real estate agent. “Sorry, but the deal’s off – someone’s come in with a more competitive offer, and the seller’s decided to take that one instead”. You don’t believe it. How could this have happened? Are they even allowed to do that? Whose manager do I need to talk to about this?!

Like a seagull with its eye on your last hot chip, one of those rival buyers has just swooped in and snatched your dream home away. Sorry to say it, but you’ve just been gazumped.

What is gazumping?

Gazumping is a colourful term for what happens when a buyer and a seller agree on a price for a property, but before the paperwork is fully signed off, the seller backs out because someone else has made a more attractive offer. Gazumping is nothing new – Principal of Michelle May Buyers Agents, Michelle May, told Canstar it has been going on since people have been buying and selling houses, but that in a hot property market with lots of demand, you might well expect to see it more often.

In most parts of Australia, the sale of a property only becomes legally binding when both buyer and seller have exchanged signed written contracts. This means that, as a buyer, even if your offer has been accepted and you’ve started signing contracts, you could be vulnerable to getting gazumped right up until the point when the seller has signed on the dotted line and the offer has gone unconditional.

“Gazumping happens in the time between when you have made an offer and when the offer has gone unconditional,” said Ms May.

“The trick is to have the time between the offer and the unconditional exchange to be either simultaneous or as short as possible, so you do not give other buyers the chance to get a foot in the door, and potentially up the offer or make the vendor change their mind.”

How does gazumping happen?

Gazumping can occur in a number of ways, although it often comes about when a real estate agent uses your offer as leverage to try and secure a better deal for the seller.

When you go to an inspection, the real estate agent might seem like your friend, smiling at you and smelling faintly of freshly-baked cookies, but at the end of the day, they work for the seller. A real estate agent’s job is to get the best price for the house, and not only that, they are in many cases legally obliged to present all offers to the seller, up until the exchange of contracts.

Once you’ve made your offer, there’s generally nothing to stop the real estate agent taking that offer to a rival buyer to try to negotiate a higher price for the property. This can result in a bidding war, with all the parties upping their offers and bumping the price up until only one buyer remains.

Of course, gazumping does not always happen this way. Sometimes, another hopeful homeowner who also really loves that fancy kitchen splashback and those sparkly city views might make a higher offer of their own accord.

Is gazumping legal?

Unfortunately, yes – in most parts of Australia, gazumping is legal, or at least not subject to regulation.

Queensland is generally seen as the only jurisdiction that has taken steps to actually eliminate the process. In the Sunshine State, an agreement to buy a home is legally binding once a buyer has made a formal, written offer and the seller has accepted it. A final exchange of documents is still necessary for the house to actually change hands, but not to prevent gazumping, so a rival cannot sneak in after a seller has agreed in writing to sell you the property.

In the ACT, gazumping has not been outlawed, but the government has taken steps to make it more difficult. There, a seller is required to have key documents such as title certificates physically attached to most sale contracts, which makes it more difficult for them to dump one offer for another.

In other states, an agreement to buy a home is not legally binding until contracts have actually been exchanged and signed by both parties, which leaves greater potential for gazumping. There are many things that can hold up the exchange of contracts. For example, the buyer must make sure they can obtain the necessary finance for the purchase, and must generally complete requirements such as building and pest inspections.

These requirements can make the process last longer, creating an opportunity for someone else to sneak in.

What happens if someone gazumps you?

As you can surely imagine, there can be a number of financial losses associated with getting gazumped. There are various costs associated with buying a property, including legal and conveyancing fees and building and pest reports, and once you’ve laid out the money for these, the seller is usually under no obligation to refund you, even if the sale does not go through.

Aside from the financial side, there can also be an emotional cost to getting gazumped. Ms May said it happened to her early in her property career, and that it was indeed something she’d rather never face again.

“When I first started out in the property industry, when I was flipping properties for fun, I did come up against it, and it’s a very scarring experience,” she told Canstar.

“Property buying is very emotional for many people – a house may be the most emotional purchase you’ll ever make, as well as the most expensive, so being on the receiving end of gazumping is horrible.”

Keep in mind, however, that you won’t always be worse off if you get gazumped. After all, if the dream property you were considering turns out to have been overpriced, a better deal might be just around the corner for you.

How can you avoid getting gazumped?

At the end of the day, the seller of a property wants the best price possible, so unless the law forbids it, there is nothing to stop them from accepting a better offer until all contracts are exchanged and the sale is final. While there are very few foolproof ways to avoid gazumping, there are steps you can do to help avoid it.

Buy at auction

The only guaranteed way to avoid getting gazumped is to buy a property at auction. Once the bidding is all done and the auctioneer yells “Going, going, gone!”, the highest bidder has purchased the property. With no cooling-off period comes no opportunity for another buyer to swoop in and offer a higher price.

Bear in mind, however, that there are also some risks associated with buying at auction, such as the fact the sale will typically be treated as ‘unconditional’ as soon as the hammer falls, meaning you may be locked into buying it – with a hefty, non-refundable deposit payable – even if you aren’t ultimately able to secure a home loan.

Get pre-approved finance

Pre-approved finance, also known as conditional approval, means that a lender has agreed, in principle, to lend you an amount of money towards the purchase of a home. There are a number of benefits to getting pre-approved finance – it will allow you to budget realistically, as you will know the maximum amount you may be able to borrow. It can also make you more attractive to a potential seller, as your offer is less likely to fall apart due to a lack of financing.

Getting pre-approved finance can also help you avoid getting gazumped. If a lender has already approved you for a loan, it means you will likely have a shorter wait time to get your funds, which could also shorten the time it takes to exchange contracts. This means less time for other buyers to snap up your dream home. However, keep in mind that pre-approval does not guarantee you will be approved when you apply for the loan. Depending on the circumstances, a lender may still choose not to give you formal approval. For instance, they might decide against it if your income falls, or their policies change before you apply.

Get your building and pest inspection done quickly

Before buying a property, it is a good idea to carry out a building and pest inspection. Real estate is a big investment, so getting an inspection could help make sure that the property you’re buying is structurally sound and clear of vermin, such as termites. The sooner you have your building and pest inspections completed to your satisfaction, the more quickly you can exchange contracts and finalise your agreement.

Work with your solicitor

If you are worried about getting gazumped after a seller has accepted your offer, you can request that they take the house off the market. Your solicitor may be able to draft an exclusivity agreement to present to the seller, and while this may come at an extra cost, it will give you peace of mind that the property won’t be sold out from under you.

Work with a buyer’s agent

While buyer’s agents also come at a cost, working with one could give you some peace of mind and help minimise the danger of gazumping. A buyer’s agent will often have a close relationship with various real estate agents, and should be able to advise you about the best time to make an offer, as well as other strategic steps to take – helping make sure all your proverbial ‘ducks’ are in a row.

Be prepared to pay more

If you really have your heart set on a property, and you find out that someone else has made a higher offer, it’s not necessarily game over. If you have access to the funds, then you may be able to increase your purchase price offer above your rival’s. In this situation, though, it pays to keep your budget in mind, to make sure that if you do end up in a bidding war, you don’t find yourself in over your head financially.

You may never come up against gazumping in the course of your house-hunting adventures, but it can and does happen to some prospective buyers. It’s worth considering some of the steps you can take to try and avoid it, to help you on the way to barbecuing on your fancy new deck in your shiny new home.

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