Do YOU want to obtain an advantage over competitors?
To become the buyer to legally secure the property before another competing party?
The below content and practical steps provide you with the power to act BEFORE it’s too late.
Contrary to what you might hear and despite the property market slowing in some respects, there are many pockets of NSW that due to their location attract several buyers. This can often result in buyers COMPETING for the SAME PROPERTY.
To maximise exposure of a Vendor’s property, some Real Estate Agencies have multiple agents within the one agency who can market properties individually to several buyers. Yes, this can occur while you are inspecting that same property, perhaps the one of your dreams.
Below are the 5 fundamental steps to obtain an advantage, secure the property and avoid ‘GAZUMPING’.
- What is gazumping?
- How to be ready to act immediately.
- How the choice in your legal representative makes all the difference.
- Find your dream property? What next?
- How to know you have legally secured the property?
WHAT IS GAZUMPING?
Gazumping occurs when you find a property to purchase, have your offer accepted by the Vendor or Agent however, the property is sold to someone else as you have not legally committed to purchase the property. Often unbeknown to you there is a competing purchaser who has offered the same purchase price (sometimes higher) who quickly secures the property, by way of exchange of contracts.
- Until you ‘exchange’ a Contract there is no legal obligation for an owner (Vendor) to sell the property to you. Payment of a sum of money does NOT legally hold the property for you. Please see the following link from Office of Fair Trading’s website further defining ‘gazumping’
- The Agent is obligated to present all offers to the Vendor until exchange of Contracts
When you exchange a contract, s66U of the Conveyancing Act states that you have 5 business days upon which you can withdraw from the Contract and only forfeit 0.25% of the purchase price. The Owner (Vendor) is committed to sell the property to you and cannot withdraw from the Contract.
- Knowledge is power.
- Some years ago, the NSW Government introduced ‘cooling-off’ legislation. Unfortunately, due to old school practices, it had not been commonly accepted in the marketplace and often a Vendor’s legal representative would insist on a waiver of the cooling off period.
- Now there appears to be a shift in these processes and many Real Estate Agents are offering the parties an ability to exchange contracts immediately. In today’s market this is supported by many Conveyancers and some Solicitors.
- Should you understand the process and accept the potential monetary loss as outlined above, then there is no reason why you can’t proceed with this course of action.
- Once you have secured a property ‘exchange of contracts’, it is possible to renegotiate with the Owner (noting that if a problem has arisen with you; it is most likely to arise with any future buyer).
- The commitment by the Vendor to sell has occurred; therefore, they are more likely to wish to continue the process versus losing their buyer ie they are more likely to consider negotiating with a buyer under contract, then a buyer who has not formally committed.
HOW TO BE READY TO ACT IMMEDIATELY
Without the following steps in place you are not adequately ready to act immediately on your next purchase. Strongly consider and adopt the following:
- Meet with a financial institution or a reputable broker and know what you can afford. Obtain a written pre-approval of finance.
- Do your research and compare sold properties via various platforms including RP data and ‘sold’ on domain.com and the like.
- Be very clear on what you desire in a property for example, size, area, swimming pool etc. Also have clarity on what you are not willing to accept for example, specific areas.
- Have your deposit ready. Initially it is best to have a bank cheque ready to be drawn in favour of the Real Estate Agent’s trust account for the sum of 0.25% of the purchase price. Discuss where the balance of your deposit is coming from with your financier and Conveyancer.
Don’t think that this cannot happen to you. Our office receives weekly referrals from clients who have been gazumped however, who wish to ensure it does not happen again.
HOW THE CHOICE IN YOUR LEGAL REPRESENTATIVE MAKES ALL THE DIFFERENCE
The choice in legal representative is critical as you need a representative who encourages and supports quick exchanges of Contracts. One who overall accepts this practice in today’s market and who can be available on call to protect and guide you through the process.
- Obtain a recommendation/s. Call the State or National peak body for Conveyancers and ask for recommendations. aicnsw.com.au
- Once you have contact details, be sure to ask questions including their level of expertise, years in practice, whether they have a restricted licence, sight their insurance. Also, be sure to ascertain whether they will work in a speedy precise manner to achieve a quick exchange of Contracts and would they assist with negotiations of contract price? What is their definition of quick?
- Obtain email addresses and direct mobile numbers for your representative and their team. Time is of the essence be sure to check they will support a quick exchange of Contracts and be there to review a Contract after hours or on the weekend, as required.
Consider your choice of representative similarly to a coffee, would you prefer an instant coffee?
A coffee brewed by a barista?
FIND YOUR DREAM PROPERTY, WHAT NEXT?
Here is where you will gain the real advantage….
- Once you have found the property (or even before inspected), ask the Real Estate Agent to email the Contract to you and your Conveyancer.
It is common now for Real Estate Agents to make available on the listing of the property online a downloadable version of the Contract.
Instruct your Conveyancer to review the Contract and to contact you to discuss the contract and process to exchange contracts quickly.
- Once your offer to the Real Estate Agent is accepted, prepare your cheque in favour of the Real Estate Agent or cash for the sum which is equivalent to 0.25% of the purchase price.
Print a full copy of the Contract for Sale or have it emailed to you directly if it is not available online.
- Should you be satisfied with the price you are paying, and your Conveyancer is satisfied with their electronic review of the Contract (including any amendments they may have sought on your behalf), the next step would be to sign the Contract and present the Contract to the agent immediately. At this time, you would also need to sign an authority for the agent to exchange Contracts on your behalf.
At this stage the agent is authorised to proceed with exchange whilst you retain your cooling off rights.
The only way in which these rights can be waived, is by a Licensed Conveyancer or Solicitor signing a certificate under s66W of the Conveyancing Act 1919.
Remember Gazumping only occurs when a seller accepts another offer if a Contract for Sale has not been exchanged. What you have just done above is initiating the exchange process. The Owner is committed to selling to you and you are the only party that has a right to ‘cool off’.
HOW TO KNOW YOU HAVE SECURED THE PROPERTY (AND HAVE NOT BEEN ‘GAZUMPED’)?
The first part of the exchange process has occurred as demonstrated above. It is now time to ensure that the property is yours:
- Ask the Real Estate Agent to facilitate the signing of the Contract by the Owner (Vendor) as soon as possible, ideally that very same day and to proceed with exchange of contracts.
- Once they have confirmed this has been done, immediately advise your Conveyancer and order all inspection reports required. Also ensure that your financial institution or Broker receives a copy of the exchanged contract immediately, (either the Agent or Conveyancer should do this on your behalf).
- Providing the Agent has a contract signed by both parties and express authority to exchange Contracts, exchange should occur. Bearing in mind it is in the best interest of a Real Estate Agent to also secure a sale for their Vendor client to abide by their obligations under the Agency Agreement and to also secure their commission pursuant to such agreement.
Once exchange has occurred, the Vendor is committed to selling to you. Remember you however can, at any time up until 5pm on the fifth business day following the date of the Contract, withdraw and forfeit 0.25% of the purchase price. Your Conveyancer MUST do this by drafting a legal Notice of Rescission and sending this to the Vendor’s representative.
Should inspection reports come back during this time with defects, renegotiations can occur in the cooling off period and the Contract can be formally varied to provide for price reductions or works to be carried out. Please be sure to always immediately advise your Conveyancer should a renegotiation be reached.
To receive a free consultation to discuss the above steps or any other property law related matter, please e: firstname.lastname@example.org