Gazump. It might sound like a sound effect from an old Batman comic, but gazumping is no laughing matter. In its most basic terms, the word itself means ‘to cheat’ or ‘to swindle’. However, in real estate, it has a very specific meaning – and understanding that meaning could save you thousands.
What is gazumping?
A standard gazump in a property transaction might look something like this: A buyer shake hands with the vendor and their agent on a property deal. The buyer then carries out their due diligence, running checks like surveying or building inspections in the pre-formalisation period.
Then, just before the buyer and the vendor meet to finally sign off on the deal, another buyer swoops in with a higher offer and the first buyer is out in the cold. They just got gazumped.
Usually, the practice arises in a particular market context, where it’s moving upwards. It doesn’t really make sense in a falling market.
A legal grey area
Real estate agents around Australia have to comply with a long list of regulations, but one principle that’s sacrosanct is that they’re not allowed to work against the interests of their clients – that is, the vendor.
Gazumping usually happens in that no-man’s land between an informal agreement on a property between buyer and vendor – the handshake – and the actual contract signing day, which usually occurs sometime after.
The current set-up allows this to happen because it’s a legal grey area that arises from the fact that in most Australian states, the buyer and vendor aren’t obliged to sign legally binding contracts at the time of the sale agreement.
In most cases, if a buyer makes an offer on a property at a certain price, they’ll usually exchange signed agreements – more or less identical – with the vendor. The buyer’s says, “Yes, I agree to take the property at this price”; the vendor’s says, “Yes, we agree to sell it to you at that price.”
But here’s the rub: The buyer may still need to finalise things, like finance, that can take time. While they’re doing that, the agreement is still technically informal, and the vendor has the right to keep pitching the property on the open market. And yes, they may even sell it to someone else who – using our example here – already has their finance in place.
If, as a buyer, you get gazumped, you can’t recover the money and time you spent putting the deal together from your side. You’re out of pocket, with nothing to show for it, and you’re the only one who’s been put out. The vendor is still happily progressing their sale with the new buyer.
Generally, there’s very little a buyer can do about it.
The moral question
Gazumping often just comes from the vendor’s desire to get the highest price possible. You can’t really blame them for that. If someone came to you with a better offer on a property you were selling, and you had no legal restriction on whether or not to accept it, then it should be your choice, right?
A real estate agent may even take your offer – unbeknownst to the vendor – and shop it around, nudging those they think have a higher budget to grab the property before it’s gone.
The Queensland way
Queensland is one state that has virtually eliminated gazumping.
In the Sunshine State, when a buyer makes a formal written offer to the vendor, the vendor then accepts or rejects it. If they accept it, the agreement is effectively binding, once it is delivered to the buyer’s solicitor. This system assures the buyer that the property is theirs, pending their own steps in finalising the transaction. It essentially closes the window where agents and vendors can continue playing the market – and remember this applies in a rising market where prices can shift upwards fairly quickly – to their advantage.
There have been calls to introduce the Queensland approach nationwide, but as yet, gazumping is still allowed and openly practiced in other states around Australia.
Outside of Queensland, the best hope buyers have is to request a Queensland scenario, and strike up a binding agreement on the day, so they have some peace of mind they are not going to be gazumped.
Protecting our clients’ interests
In our twenty plus years in the Australian and international real estate market, we’ve developed a keen expertise in how to look out for our clients’ interests. When it comes to buying or selling in the Australian market, Resale Australia has your back.