Gazumping

Gazumping. Funny word, not so funny when it happens to you.

If you've never heard of it, gazumping (or being gazumped) in the real estate market works like this:

• The first purchaser makes an offer on a property, either in writing or verbally

• The vendor agrees to accept that offer

• The second purchaser makes a better offer on the same property (maybe they offer more money, maybe better terms, whatever floats the vendor's boat)

• The vendor decides they like the second purchaser's offer better and accepts that offer

• The first purchaser gets a phone call that they're not going to like, telling them sorry, but that house they thought they bought isn't going to be theirs after all.

The occurence of gazumping is thought to increase when the property market is booming, because for every property on the market there are usually a handful of keen buyers willing to throw their money at it. Almost every time gazumping occurs, it is the result of the second buyer offering a higher price. However, it can also happen if another buyer offers better terms, for example a different settlement period (shorter or longer, depending on the seller's preference), or perhaps an unconditional offer (not subject to finance, inspections, etc).

You might have noticed, if you have read a contract of sale, that the front page refers to an offer by the purchaser. It will say "This offer will lapse unless accepted within [ ] clear business days (3 clear business days if none specified)". This means that the vendor has three days to accept your offer. During that time is when you are most likely to be gazumped, because the vendor might still be accepting other offers on the property. Agents are required to pass on any offer they receive, even if they know the vendor has already verbally accepted another offer.

If you have already paid a deposit when you are gazumped, the deposit must be refunded to you. However, what you won't get back is any money you might have already paid out in relation to the property - building or pest inspection fees, legal fees, etc. This can put you in a bit of a no-win situation, as a way to avoid gazumping is be ready to sign an unconditional contract when you make the offer. You would need to have your finance in order, any inspections you want done already undertaken and reports received, and be willing to be flexible to the vendor's settlement timeframe. However, this is also fraught with issues. You can shell out a lot of money getting these things done, only to find that the property has already been sold to someone else. Further, any finance approved before you sign a contract is usually only a conditional approval, meaning the lender might change their mind about lending funds when they see the contract, leaving you without sufficient funds to complete the purchase.

You would like to think that lawmakers have been able to do something to prevent gazumping, (they seem to have managed to legislate against everything else!), but unfortunately there's no law against it in Victoria. If you are looking to buy a property, know that gazumping is essentially unavoidable*, but take comfort that it is doesn't seem to happen very often in the Ballarat property market. And once you have exchanged fully signed contracts, you're safe, because if the vendor tries to pull out then they will be in breach of the contract.

*You can avoid being gazumped by buying at auction, where there is no cooling-off period and the contract is usually unconditional. But be sure before you do this, because once the hammer falls there's no backing out.