Gazumping Explained | The Complete NSW Buyer’s Guide

“Gazumping” is a term that strikes fear into the hearts of many prospective property buyers in New South Wales.

It occurs when a seller or their agent accepts your offer to purchase a property at an agreed price, only to sell it to someone else for a higher amount before you sign and exchange contracts.

This article will guide you through the intricacies of gazumping and provide strategies to protect yourself from this unfortunate situation.

What is gazumping?

In NSW, a property sale becomes legally binding only when contracts are exchanged between the buyer and the seller. This process of “exchange” involves both parties signing their respective copies of the sale contract and swapping them (this practice usually done by the agent). Typically, the buyer also pays a deposit at this time.

However, until the exchange of contracts actually occurs, the agent is legally obliged to present any further offers to the seller. This means that if a higher offer comes in, the seller can choose to accept it, leaving the original buyer “gazumped”.

Consequences of being gazumped

If you find yourself being gazumped, neither the seller nor the agent is required to compensate you for any expenses incurred, such as legal advice, inspection reports, or finance application costs. However, any expression of interest payment you made must be refunded in full.

How to protect yourself from being gazumped

1. Pre-arrange loan finance: Ensure your loan finance is pre-approved and that you can pay the 10% deposit via bank cheque or deposit bond without delay.
2. Engage a lawyer when you start looking for a property: Many buyers only engage a lawyer once they have actually had an offer accepted on a property. This can sometimes result in unecessary delays whilst the law firm onboards the buyer as a client before providing advice on the contract. To avoid these unecessary delays, buyers should engage a lawyer at the time they start looking for a property to ensure the law firm is then on standby and ready to review the contract immediately once the buyer has had an offer accepted.
3. Review the sale contract promptly: Obtain a copy of the sale contract as soon as possible and have it reviewed by your licensed conveyancer or lawyer.
4. Exchange contracts quickly: Aim to exchange contracts with the seller swiftly after having your offer accepted. Remember, a five-day cooling-off period begins once contracts are exchanged, during which only you (as the buyer) have a right to terminate the contract within.
5. Conduct inspections during cooling-off: Use the cooling-off period to perform building and pest inspections and have the contract thoroughly examined. Be aware that rescinding the contract during this period results in forfeiting 0.25% of the purchase price to the seller.
6. Negotiate firmly: Insist that the agent passes all bona fide offers to the seller. While agents must inform the seller of all offers until contracts are exchanged, you can request written confirmation that your offer has been communicated.
7. Be prepared to increase your offer: If you are committed to purchasing the property, be ready to increase your offer (if you are guzumped).
8. Understand seller rights: Sellers are not obligated to sell to the highest bidder and can change their mind at any time before the exchange of contracts.

Auctions | A gazumping-free zone

It’s important to note that gazumping cannot occur in the auction process. Once the hammer falls, the sale is binding, providing a level of certainty not present in private treaty sales.

By understanding the process and taking proactive steps, you can protect yourself from the disappointment and financial loss associated with gazumping. Always consult with your lawyer or conveyancer to ensure you are fully prepared for your property purchase journey.

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