Does Gazumping continue in the Australian Real Estate Market?
In the fast-paced world of Australian real estate, buying and selling properties is often a thrilling yet stressful experience. The hope is always to strike a fair deal and finalize the sale without complications. However, a practice known as gazumping can complicate this process and, in some cases, cause frustration and disappointment for buyers.
What is Gazumping?
Gazumping occurs when a seller agrees to sell their property to a buyer, often after negotiations, but later accepts a higher offer from another buyer. Can this happen? Even after the original buyer believes they’ve reached a verbal agreement or agreed price with the seller. The seller then backs out of the original deal in favour of the new offer, typically one with a higher price or more favourable terms.
This practice is considered both unfair and unethical, even though it may be legally permissible in some regions. The emotional toll can be significant for buyers when they feel that the deal they thought was secure has been unexpectedly taken away. Gazumping undermines trust and can leave a buyer scrambling for other options.
Are Sellers Obligated to Accept the Highest Offer?
It’s a common misconception that a seller must accept the highest bid or stick with a particular buyer once an offer is made. In reality, until contracts are formally exchanged and signed, the seller holds all the cards. They are under no legal obligation to choose the top offer or commit to any one buyer, even if an agreed price has been verbally accepted. Sellers may decide to select an offer that best suits their needs—sometimes accepting a lower price if the terms are more favourable, or if they feel more confident about the buyer’s ability to settle quickly. This flexibility in decision-making is part of what makes gazumping possible in the Australian market.
Does Gazumping Occur at Property Auctions?
When it comes to property auctions in Australia, gazumping isn’t something buyers need to worry about. The auction process works quite differently from private treaty sales. At an auction, the property is sold to the highest bidder once the hammer falls, and that agreement is legally binding on the spot. There’s no opportunity for the seller to accept a higher offer after the auction ends, so the risk of being gazumped is essentially eliminated in this setting. For many buyers, this provides an extra level of certainty (and, perhaps, a little less heartache) when competing for their dream home.
What Happens to Your Costs if Gazumping Occurs?
If you find yourself gazumped, the unfortunate reality is that any money you’ve already invested—such as fees for legal advice, building or pest inspections, or mortgage applications—is unlikely to be reimbursed. Both the seller and agent owe no compensation for these outlays, even if you acted in good faith based on a handshake or verbal agreement.
The only exception is your “expression of interest” payment (if you made one); this amount must be returned to you in full. But when it comes to the rest—those time-consuming bank applications or precise Jim’s Building Inspections reports—consider those costs sunk if the seller changes course before contracts are exchanged.
Gazumping in Australia: Less Common, but Still Possible
In Australia, gazumping is generally less common than in other countries like the UK, primarily because of how the property sale process works. In most Australian states, including New South Wales, Queensland, and South Australia, the sale of a property becomes legally binding once both the buyer and seller have signed the contract of sale. Until the contract is signed, there is no formal commitment to the deal.
This system reduces the likelihood of gazumping, as once the contract is signed, the deal is legally binding, and the seller cannot easily accept a higher offer without legal consequences. However, the risk of gazumping still exists in regions where buyers and sellers have not yet reached that point.
What Are the Legal Obligations of Real Estate Agents Before Contract Exchange?
Real estate agents in Australia have key responsibilities when it comes to handling offers on a property prior to the formal exchange of contracts. Typically, the law requires an agent to present all genuine offers to the vendor—right up until both parties have signed and exchanged the contract of sale. This ensures that sellers are fully informed of potential opportunities, even in the eleventh hour.
There are, however, some nuances to keep in mind:
- Mandatory Disclosure: Agents must notify the vendor of any new offers unless the seller has given specific written instructions stating otherwise (for example, if the vendor doesn’t want to be notified of offers below a certain amount).
- Passing on Offers: While buyers may ask for written confirmation that their offer has been delivered to the seller, agents aren’t strictly required by law to provide such documentation. That said, many reputable agents, such as those from Ray White or LJ Hooker, are happy to provide reassurance along these lines.
- Preparedness is Key: If you’re keen to snap up a property and avoid disappointment, it’s wise to be ready to act quickly. Have your signed contract and deposit organised so you can move fast when the time comes.
If you’re told there are other offers on the table, don’t hesitate to ask for details in writing. Although agents aren’t obligated to confirm competing offers in writing, many will accommodate your request to help keep the process transparent and above board.
Gazumping in Victoria: A Different Process
In Victoria, the property sale process is slightly different. A property sale is not considered legally binding until both the buyer and the seller have signed a contract of sale. Meaning that, up until the point of signing, the seller can still entertain offers from other buyers, making gazumping a less common practice compared to other regions in Australia.
However, even in Victoria, sellers may still back out of an agreement if no formal contract has been signed. Buyers may find themselves in a precarious situation if they believe they’ve secured the property only to discover that the seller has accepted another offer.
The Rise of “Contractual Gazumping”
In recent years, a new form of gazumping known as “contractual gazumping” has emerged in our competitive property market. This occurs when the estate agent includes a clause in the sale contract that allows the vendor (seller) to cancel the contract and accept a more favourable offer.
This clause can give the seller an escape route, even after the buyer has agreed to the terms and signed the contract. The seller can then sell the property to someone else who offers a higher price or better conditions. This type of “contractual gazumping” has raised concerns for many buyers, who find it frustrating and unfair, especially when they believe the deal is secure.
While this type of gazumping is still relatively rare in Melbourne, it’s become a growing trend in some competitive markets. Buyers are encouraged to be aware of this clause, as it can create unexpected risks during the property purchase process.
How Can Buyers Protect Themselves?
Although gazumping remains uncommon in Australia compared to some other countries, the rise of contractual gazumping and the possibility of sellers backing out of deals before signing contracts means that buyers must be proactive in protecting themselves. Here are some key steps buyers can take:
Have Your Finances Ready to Move Quickly
When making an offer on a property, having your loan finance pre-approved and your deposit funds on standby is essential. Why? Because being financially prepared ensures you’re ready to move swiftly the moment your offer is accepted. In a competitive market, delays in securing finance or scrambling to put together the standard 10% deposit—whether by bank cheque or deposit bond—can leave the door open for another buyer to swoop in and gazump you.
Sellers are often drawn to buyers who are organised and able to act fast. By getting your financial ducks in a row before you start negotiating, you dramatically increase your chances of exchanging contracts quickly and locking in the deal. This simple step offers peace of mind, making you a much more attractive proposition to sellers and greatly reducing your risk of disappointment.
- Read the Contract Carefully: Before committing to any agreement, buyers should thoroughly review the contract of sale. Be on the lookout for any clauses allowing the seller to cancel the sale or entertain higher offers. If unsure, seek legal advice.
- Engage a Lawyer or Conveyancer: It’s always wise to seek professional legal assistance when buying property. A property lawyer or conveyancer can help ensure that the contract is clear and that no clauses could expose the buyer to gazumping. They can also assist with negotiation to secure a fair deal.
- Negotiate for Certainty: In a competitive real estate market, buyers can negotiate for stronger contract terms to reduce the risk of gazumping, which may include requesting non-refundable deposits or other clauses that would discourage the seller from backing out of the deal.
- Understand Local Real Estate Practices: Different regions in Australia may have different practices around property sales. In Melbourne, for example, buyers need to be aware of the growing trend of contractual gazumping and ensure they are well informed about the risks.
- Seek Early Legal Commitment: We aim to secure legal commitments early in the process, such as exchanging contracts sooner rather than later, providing buyers with peace of mind and reducing the risk of being caught out by higher offers.
What Happens to Your Expression of Interest Payment if You’re Gazumped?
One frequent question we receive is whether buyers get their expression of interest payment back if they’re gazumped. The answer is yes—if you pay an expression of interest and the seller chooses to accept another offer, your full payment should be refunded to you.
It’s important to note, however, that while your expression of interest payment is protected, other expenses—such as legal advice, building inspections, or finance application costs—are typically not recoverable if the sale falls through. This is why it’s crucial for buyers to seek clarification on refund policies and to proceed with caution before investing in additional services prior to a contract being signed.
Can Buyers Request Written Proof Their Offer Was Presented?
Buyers often wonder whether they can ask for written confirmation that their offer was shown to the vendor. While you are absolutely within your rights to make such a request, it’s important to know that real estate agents are not legally required to provide written evidence confirming that your offer was passed on.
That said, some agents will happily provide an email or note for added peace of mind—especially if you make a polite, direct request. Still, be aware that the lack of a legal obligation means you may not always receive this documentation. If you’re concerned about transparency or fairness in how your offer is handled, it’s a good idea to communicate openly with your agent, and, when in doubt, seek advice from your property lawyer or conveyancer.
Understanding Cooling Off Period Risks
When it comes to the cooling off period, buyers are afforded a valuable window of time to conduct building and pest inspections, as well as have the contract reviewed—critical steps to ensure peace of mind before locking in the deal. But what happens if you decide to walk away from the contract during this time?
If you choose to rescind the contract during the cooling off period, there are financial consequences to keep in mind. Most notably, you will typically forfeit 0.25% of the purchase price to the seller. This fee acts as compensation for the seller, since the property has been temporarily removed from the market while you considered your position.
This forfeited amount is usually deducted from the deposit you put down when signing the contract. If the deposit does not cover the full forfeiture, you may need to pay the shortfall out of pocket. Always check your contract carefully for the exact terms surrounding the cooling off period and the financial implications of withdrawing your offer.
Being aware of these risks enables you to weigh your options wisely, so you can proceed with confidence—or reconsider your position—before the cooling off window closes.
Understanding the Cooling Off Period
Once contracts have been exchanged on a residential property, buyers are generally entitled to a five-day cooling off period. During this short window, the buyer—not the seller—holds the right to withdraw from the agreement without proceeding to settlement.
This cooling off period is designed to give buyers time to:
- Conduct final due diligence, such as building and pest inspections.
- Review the contract with a lawyer or conveyancer to ensure all terms are understood.
- Reconsider their decision if needed, without the pressure of losing the property immediately to another buyer.
If you do decide to back out of the contract during the cooling off period, keep in mind that you’ll forfeit 0.25% of the purchase price to the seller. This amount is typically deducted from the deposit you paid, but if the deposit isn’t enough to cover it, you’ll need to make up the difference.
Full details about the cooling off period, including any relevant timeframes or requirements, should be outlined in your contract of sale. Always check these provisions carefully, as sometimes buyers may choose to waive or even extend this period by mutual agreement.
Conclusion
Although less common in Australia than in other countries, contractual gazumping still poses a risk to property buyers in areas where it has become more prevalent. Buyers must be vigilant and well-informed throughout the property transaction process.
We are always here to provide expert advice in property law and conveyancing by carefully reading contracts, seeking professional advice, and negotiating for more secure terms.
With the proper steps, buyers can protect themselves and ensure that their property deals remain solid and secure. Call us today for expert advice or to engage our conveyancing services.
