Have you been Gazumped?
The real estate market is presently very brisk. When a vendor accepts an offer, there is no binding agreement until Contracts are exchanged. In a heated market, often before Contracts are exchanged, the vendor is offered a higher price for the property (after accepting the first offer). It is open to the vendor to accept the higher price and not sell to the first purchaser (even though the vendor accepted the offer). This means that the first buyer (at the lower price) has been gazumped. Of course, some vendors keep to their word and sell to the first buyer even if they receive higher offers. However, others cannot resist the temptation of receiving more money for their property and sell it to the purchaser who makes the higher offer. If Contracts are exchanged quickly, then the risk of the purchaser being gazumped is minimised.
A property cannot be marketed until the real estate agent is holding a draft Contract. If agreement is reached between the vendor and a purchaser for the sale of the vendor’s property, then it is open to the real estate agent to complete the draft Contract by adding in the name of the purchaser, the solicitor acting for the purchaser and the purchase price and after having the Contracts signed by the vendor and the purchaser, exchanging the Contracts. In that event, the vendor is locked into the agreement however there is a cooling off period in favour of the purchaser for five business days. This period of time allows the purchaser time to arrange any inspections of the property and ensure that finance is approved. It enables the purchaser to make any other enquiries considered necessary. During the cooling off period, the purchaser can rescind the Contract without giving a reason to the vendor. If the Contract is rescinded, the purchaser forfeits 0.25% of the purchase price in favour of the vendor however, the purchaser has no other obligations to the vendor and the Contract does not proceed. If however, the purchaser does not rescind the Contract, then it becomes binding on the purchaser after the five day cooling off period. If Contracts are exchanged by the solicitors acting for the vendor and the purchaser, it is open to the purchaser to waive his or her cooling off period in which event the solicitor for the purchaser gives to the solicitor for the vendor, a certificate pursuant to Section 66W of the Conveyancing Act, which has the effect of waiving any cooling off period. This means that there is a binding agreement between the parties when the Contracts are exchanged without a cooling off period.
If a purchaser is concerned that he or she may be gazumped, then the purchaser is wise to exchange Contracts (with or without a cooling off period) as soon as possible after agreement is reached with the vendor.