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.
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.
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:
- 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.
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.