Home Property & You Is Gazumping Legal in NSW? A Quick Guide

Is Gazumping Legal in NSW? A Quick Guide

Is Gazumping Legal in NSW?

Are you currently in the process of buying a property in New South Wales? If so, you may have heard the term “gazumping” thrown around. But what exactly does this term mean and is it legal in NSW?

Gazumping occurs when a seller accepts an offer from a buyer but then decides to sell the property to someone else for a higher price. Unfortunately, in most parts of Australia, including NSW, gazumping is legal. This means that even if you have made an offer on a property and the seller has accepted it, they can still legally accept a higher offer from another buyer and sell the property to them instead.


Gazumping in NSW

If you are planning to purchase a property in New South Wales, you might have come across the term “gazumping”. Gazumping is a common occurrence in the property market, and it can be a frustrating experience for potential buyers. In this section, I will cover the legal context of gazumping in NSW. I will also look at the role of agents and sellers, and what it means for you as a buyer.

Defining Gazumping

Gazumping occurs when an agent or seller accepts an offer you make to buy a property at an agreed price but the property is sold to someone else. This usually happens when the vendor sells the property for a higher amount. The agent is legally obliged to pass on to the vendor any further offers received for the property up until the exchange of contracts. However, until contracts are exchanged, there is no binding contract in place. In that case, the seller can accept a higher offer from another buyer.

The Legal Context

In NSW, the exchange of contracts is the point at which a sale becomes legally binding. Until this point, either party can withdraw from the sale without penalty. This means that even if you have a verbal acceptance or a written contract, the sale is not legally binding until contracts are exchanged. While this may seem unfair to buyers, it is the legal context in which property sales take place in NSW.

Role of Agents and Sellers

Real estate agents and sellers have a legal obligation to act in the best interest of the vendor. This means that they are not required to accept the highest offer, but rather the offer that is in the best interest of the vendor. This could mean accepting a lower offer from a buyer who has a close relationship with the vendor, or who has a particular purpose for the property, such as building a new home.

If you are a first home buyer, be aware that you may be more vulnerable to gazumping. This is because you may not have experience in the property market. Furthermore, you may be less familiar with the process of purchasing a property. To protect yourself, work closely with your property mentor or sales agent and to have a clear understanding of the purchase process.


The Buying Process and Risks of Gazumping

If you’re a home buyer in NSW, you may be wondering whether gazumping is legal and what risks it poses to your property purchase. In this section, I’ll take a closer look at the steps in the property purchase process. I will also look at how to identify gazumping risks, and preventative measures for buyers.

Steps in Property Purchase

As a home buyer, you’ll need to follow a series of steps to purchase a residential property in NSW. These steps include identifying a property, making an offer, negotiating the terms of the sale, obtaining legal advice, performing inspections, arranging finance, and exchanging contracts.

Identifying Gazumping Risks

Gazumping can occur at any stage of the property purchase process. It typically happens after the buyer has made an offer that has been accepted by the seller or real estate agent. The buyer may then be outbid by another prospective buyer who offers a higher price for the property.

To avoid gazumping, be aware of the risks involved in the property purchase process. These risks include the potential for fierce competition among prospective buyers, the responsibility of the purchaser to pay finance application costs, and the risk of losing the property if a higher offer is made.

Preventative Measures for Buyers

To protect yourself from the risks of gazumping, there are several preventative measures you can take as a buyer. These include:

  • Obtaining legal advice from a licensed conveyancer or solicitor before making an offer
  • Having your loan finance pre-approved before making an offer
  • Paying a deposit as soon as possible after exchange of contracts to show your commitment to the purchase
  • Requesting a cooling-off period to allow time for inspections and finance approval
  • Negotiating a longer settlement period to reduce the risk of gazumping
  • Making a higher offer to increase the chances of securing the property

By taking these preventative measures, you can reduce the risk of gazumping and increase your chances of securing your desired property at the agreed price.


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Legal Recourses and Protection

When it comes to gazumping, there are legal recourses and protections in place to help buyers protect themselves. Here are some things you should know:

Exchange of Contracts

The exchange of contracts is a crucial step in the buying process. Once contracts are exchanged, the sale becomes legally binding. This means that neither the buyer nor the seller can back out of the deal without facing legal consequences. Ensure that you have read and understood the contract of sale before exchanging contracts. If you have any questions or concerns, seek legal advice from a solicitor or licensed conveyancer.

Cooling-Off Period

In NSW, buyers have a five-day cooling-off period after exchanging contracts. During this time, you can change your mind and back out of the sale without any legal consequences. However, if you decide to do so, you will forfeit 0.25% of the sale price to the seller. It is important to note that the cooling-off period does not apply to auctions.

Seeking Professional Advice

Buying a property is a significant investment, and therefore you must seek professional advice to ensure that you are making an informed decision. A solicitor or licensed conveyancer can help you navigate the legal aspects of the buying process, including contracts, inspections, and due diligence. They can also provide advice on any conditions of the offer, such as finance clauses or building inspections.

Do your due diligence and ensure that you are making an informed decision when buying a property. Seek legal advice, conduct inspections and searches, and ensure that you have read and understood the contract of sale before exchanging contracts. By doing so, you can protect yourself from the risks of gazumping and ensure that you are getting the best price for your dream home.


Comparative Insights

Gazumping in Other Jurisdictions

Gazumping is not unique to New South Wales (NSW) and can occur in other jurisdictions. However, the legality of gazumping varies across different states and territories in Australia. For example, in Western Australia, gazumping is not illegal, and buyers are advised to act quickly and make an offer as soon as possible to avoid losing out on a property. In ACT, gazumping is also legal, but buyers have a cooling-off period of five business days in which they can withdraw from the contract without penalty.

Market Trends and Gazumping

Gazumping is more likely to occur in competitive markets where demand for residential property is high. In such markets, buyers may find themselves in bidding wars, which can lead to gazumping. Gazumping is a common occurrence in competitive markets, and buyers should be prepared to act quickly and make a bid that is above the asking price to increase their chances of securing the property.

Anti-gazumping legislation was introduced in NSW in 1995 to protect buyers from being gazumped. The legislation requires sellers to provide a buyer with a contract that includes a disclosure statement outlining the terms of the sale before the buyer signs the contract. The legislation also provides buyers with a five-day cooling-off period during which they can withdraw from the contract without penalty. However, this legislation does not completely outlaw gazumping in NSW.


Frequently Asked Questions

How can you avoid getting gazumped?

Gazumping can be a frustrating experience for buyers, but there are a few steps you can take to avoid it. One way to protect yourself is to have a contract drawn up as soon as possible after your offer is accepted. This will prevent the seller from accepting other offers while you’re still finalising the details of the sale. Another option is to negotiate a cooling-off period, which will give you time to finalise your finances and carry out any necessary inspections before committing to the sale.

What’s the go with sellers accepting other bids when you’ve already made a deal in NSW?

While it may seem unfair, sellers in NSW are legally allowed to accept other offers even after they’ve accepted yours. It can be a frustrating experience for buyers. However, there are steps you can take to protect yourself, such as having a contract drawn up as soon as possible after your offer is accepted.

Is it fair for a seller to bail on a house sale in NSW?

While it may not seem fair, sellers in NSW are legally allowed to back out of a sale even after they’ve accepted your offer. This is known as gazumping, and it can be a frustrating experience for buyers. However, there are steps you can take to protect yourself, such as having a contract drawn up as soon as possible after your offer is accepted.

After signing contracts, are you still at risk of being gazumped?

Once contracts have been signed, the risk of gazumping is significantly reduced. However, it is still possible for the seller to back out of the sale under certain circumstances, such as if they are unable to obtain finance or if there are issues with the property that were not disclosed during the sale process.

Are verbal offers legally binding in NSW?

Verbal offers are not legally binding in NSW, which means they are not worth the paper they’re not written on. To protect yourself from gazumping, have a written contract drawn up as soon as possible after your offer is accepted.

Is it recommended to let other buyers know about your offer?

While it may seem like a good idea to let other buyers know about your offer, it is not recommended. Doing so can create a bidding war, which can drive up the price of the property and increase the risk of gazumping. It’s best to keep your offer confidential until you have a written contract in place.


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