What is Gazumping?
Gazumping refers to the practice where a seller accepts a higher offer for their property from a new buyer, even after they have already verbally or in writing agreed to sell to another party at a lower price. This typically happens before contracts are exchanged, meaning the initial agreement is not legally binding in many jurisdictions.
Key Concepts
Understanding gazumping involves recognizing several key elements:
- Seller’s Motivation: Often driven by the prospect of a significantly higher sale price.
- Buyer’s Vulnerability: The initial buyer may have already incurred costs like surveys and mortgage arrangement fees.
- Legal Standing: Agreements are usually not legally binding until contracts are exchanged.
- Market Conditions: More prevalent in competitive housing markets with rapidly rising prices.
Deep Dive into Gazumping
Gazumping exploits the period between agreeing on a price and the formal exchange of contracts. In this interim phase, the seller is technically free to accept any offer. The original buyer, having proceeded with due diligence and incurred expenses, is then left vulnerable to losing the property or facing increased costs. This practice can lead to significant financial loss and emotional distress for the prospective buyer.
Applications and Scenarios
While not a formal application, gazumping arises in specific property sale scenarios:
- A buyer makes an offer, and the seller accepts.
- Before contracts are exchanged, another buyer offers a substantially higher amount.
- The seller accepts the new, higher offer, effectively reneging on the original agreement.
- The original buyer is then either outbid or must significantly increase their offer to secure the property.
Challenges and Misconceptions
A common challenge is the perceived unfairness of the practice. Buyers often feel misled, having relied on the seller’s initial acceptance. Misconceptions include believing that a verbal agreement is legally binding. In reality, without exchanged contracts, sellers often have the legal right to withdraw.
FAQs
Is gazumping legal?
Yes, in many common law jurisdictions, gazumping is legal as long as contracts have not been formally exchanged. The agreement is not legally binding until that point.
What can a buyer do if gazumped?
The buyer can try to match or exceed the new offer, negotiate with the seller, or walk away and restart their property search. They may also be able to claim back some expenses, though legal recourse is often limited.
How can buyers protect themselves?
Buyers can try to negotiate a period of exclusivity, exchange contracts as quickly as possible, and be prepared for potential price increases in a fast-moving market. Understanding the legal framework is crucial.