Gazumping: What It Is and How To Avoid It
Last updated on May 4th, 2022
Gazumping is one of the most frustrating things that can happen to a home buyer. It's a quirky term for when a seller backs out after finding a more attractive offer.
Gazumping has been going on for ages, and it often happens in a hot property market with very high demand.
In Australia, the sale of real estate only becomes legally binding when the buyer and seller have signed the written contract. This means that even if the seller has accepted your offer, they can still change their minds and sell the property to someone else as long as there is no signed contract.
How does gazumping happen?
Gazumping often happens when a real estate broker leverages your offer to try and get a better deal for the seller.
Remember that the broker or agent works for the seller, not you. So even if they seem like your friend during the home inspection, it is still their job to get the best price for the house. They are also legally obligated to present all offers to the seller.
Once you have made an offer, there is nothing you can do if the agent takes that offer to a rival buyer and start a bidding war. In the end, all parties might have to keep bumping the price until only one buyer remains.
What happens if someone gazumps you?
Gazumping can result in a substantial financial loss. When buying a property, you have to spend money on various costs such as pest inspections, legal and conveyancing fees, and building inspections. The seller is under no obligation to refund you for these expenses even if the sale does not go through.
How do you avoid getting gazumped?
The trick is to make an offer and sign the contract almost simultaneously or keep the period in between as short as possible. This way, you do not give other buyers a chance to get a foot in the door and make the seller change their mind.
Here are four ways you can avoid this horrible experience.
1. Buy property at auction.
The only sure way to avoid getting fleeced is to purchase property at an auction. Once the auctioneer bangs the gavel, the property goes to the highest bidder. There is no cooling-off period where another buyer can swoop in and offer a higher bid.
2. Secure pre-approved finance.
Getting pre-approved finance makes you more attractive to a potential seller. If a lender has already approved your home loan, it means that the funds are on the way, and you could be signing that contract soon. However, pre-approved finance does not automatically mean loan approval. A lender may still choose to deny your application if, for example, your income falls or the bank issues new lending policies before you apply.
3. Get your building inspection done quickly.
Building and pest inspections are a must before buying a property. You want to make sure that you are investing in a structurally sound building that is free of termites and other infestations. The sooner you can have your building and pest permits, the faster you can finalise the contract of sale.
4. Be prepared to open your wallet.
If another buyer has put up a higher offer on the property that you want to buy, you can try to increase your price if you have the funds. However, you must stick to your budget, so you do not find yourself in over your head.
You may never experience getting gazumped while house hunting, but in case you do, it is worth considering some of the steps above to try to get around it.
For more advice and insights on everything home loans, keep browsing Makes Cents.
