Published at: 6/21/2016 3:29:21 PM
It may sound like a family-friendly board game but gazumping is a serious pitfall for first home buyers. Here’s how to avoid it.
Picture this. You’ve found a place you love. The price is right and the vendor accepts your offer. Sweet. Then just as you kick-start the celebrations the selling agent calls to say the property has been sold to another buyer.
You’ve just been gazumped.
Is it legal? Yes.
Falling victim to gazumping doesn’t just impact first home buyers. It can happen to anyone. It is particularly common in a ‘hot’ market but that’s not to say you can overlook the risk of gazumping in a slower market.
Until hard money is paid, and most importantly, the contract of sale has been exchanged, another buyer can pop up and offer a higher price, which the vendor is legally entitled to accept. The flipside is that until exchange, a buyer can withdraw their accepted offer. And that’s just bad luck, though usually very frustrating, for the vendor.
Happily, some simple steps can protect you, the buyer, from gazumping:
1. Have your home loan pre-approved before making an offer
Importantly, have home loan pre-approval in place. If you have to race around organising finance before you can exchange contracts, you leave yourself wide open to gazumping.
2. Gather your legal team
Thumbing through the phone book to find a solicitor or conveyancer to handle the legal aspects of the sale after you have found the right property is a major time waster. Have your help lined up before you start looking at homes so you can move quickly and confidently at exchange time.
3. Know what’s involved
Many home buyers are unsure about how the home loan process works. This can lead to confusion and delay, giving a vendor reasons to think you aren’t a serious buyer. Check out ed - ME’s free, online school of money to come up to speed on how the home buying process works.
4. Let the selling agent know you can act quickly
Don’t be afraid to inform the agent your loan is pre-approved. It will show the agent you are a serious buyer and this information may be passed on to the vendor who will be confident you are a sure thing.
5. Do plenty of research
Acting quickly is good. Making a rushed decision is not. Some buyers may be happy to exchange contracts within hours of agreeing on a price to ensure they don’t miss out on a property but you need to be certain you are paying a fair price for the place. The only way to know is by understanding the local market before you make an offer.