Law Report - Gazumping: Where do I Stand?
You have listed your property for sale, there has been some interest from a number of people and you enter negotiations with a prospective purchaser resulting in agreement on price. The purchaser has completed their enquiries, has pre-approved finance and is ready to go. On the eve of the exchange of contracts you receive a phone call from your agent to convey a higher offer on the property. Now you have a decision to make as to whether to proceed with exchange with the first buyer, to accept the higher offer or negotiate with the new buyer.
On the flip side - you have found your dream property, you make an offer and it is accepted. The pest and building inspections have been completed, your finance is approved and you have engaged a solicitor to act on the conveyance. The exchange of contracts is due to take place tomorrow and you can picture yourself sitting on the back verandah of your new dream home when the agent calls to tell you that the vendor has accepted a higher offer from someone else. You are not in a position to make a higher offer and the dream is shattered.
Can the vendor accept the higher offer if contracts are about to be exchanged, and if they do, can the purchaser claim compensation for the costs they have incurred? If you find yourself in this situation as either a vendor or purchaser you may be unsure where you stand legally.
In New South Wales a property sale is generally only binding when contracts have been exchanged between both parties. Exchange occurs when the two parties sign their copy of the Sale Contract and then exchange the signed contracts. It is usual at this time for the purchaser to pay a deposit.
The law requires agents to inform the vendor of all offers up until exchange of contracts and the vendor has the right to sell to whoever they want to. The vendor is free to change their mind at any time prior to the exchange of contracts.
As a purchaser if you have a verbal agreement with an agent or seller to buy a property at an agreed price but the property is ultimately not sold to you, then you have been ‘gazumped’. Gazumping is a legal practice in New South Wales and if you are gazumped neither the agent nor the seller is obliged to compensate you for the costs you may have incurred. If you paid an "expression of interest" payment or deposit, then this must be refunded to you in full.
In order to guard yourself from being gazumped you should move as quickly as possible to ensure that you have your finance organised, arrange pest and building inspections and promptly engage a solicitor or conveyancer so that you can exchange contracts as soon as possible.