Gazumped?

We often hear sad stories out of the England and Wales about gazumping efforts and ‘chains’, (their intricate balance of consecutive property sales contracts from vendor to seller to vendor.. and so on). Unlike Australian property law, contract execution in these two countries can be held up by other processes in the ‘chain’ that are outside of the buyer’s control. Even if the buyer has completed all of their own due diligence and paperwork, the solicitors cannot exchange (formalise) the contract until others in the chain are prepared to exchange also. Exchanges can be held up for weeks or even months, only to have another prospective buyer come along and offer the vendor a higher price.

Enter the pain of being gazumped.

However, in Australia, (and specifically Victoria) our laws are quite different. Once a buyer and seller have agreed on price and terms, signed a contract and provided copies to either party and/or their solicitors, their sale contract is firmly in place. They cannot be gazumped.

We hear this phrase in our country too, though. Considering an exchanged contract is legally binding, how could gazumping possibly happen in Victoria? There are a variety of ways, and it typically occurs when buyers are either tardy, or misunderstand the legal process.

The first and obvious situation relates to a verbal expression of congrats from the agent and/or vendor. An offer is made, negotiations may further ensue, a vendor agrees to the offer and the buyer takes the verbal expression of offer acceptance as gospel. They call their friends and family, crack the champagne, and hours (or days) later they receive the news that the property isn’t theirs, and may be selling (or has been sold to someone else.

Sadly, this happens far more often than it should.

I have had countless sad stories recited to me by disappointed folks over the years. From first homebuyers who have been congratulated by the agent to experienced investors who thought that contracts were well underway. While agents have a fair reputation for causing this type of upset, sometimes the root cause doesn’t stem from the agent. Sometimes the vendor creates the devastation for the buyer when they agree to a sale and then have a change of heart before contracts are signed. In a tough seller’s market, we see this often, particularly in relation to off-market sales activity. Greed grips many a vendor, and while they await contract preparation from their legal firm, they stand back and watch property price growth in their suburb, feeling agitated that perhaps they should have taken the property to auction or put it to market for longer.

This is a problem with any transaction that is to take place in the absence of a prepared contract. The wait time can pose a threat if the vendor reconsiders the appeal of the deal.

Has the vendor gazumped the buyer? In a way, yes. They had a handshake deal and now the vendor wants a higher price.

Frustratingly, sometimes the vendor doesn’t even know what price they want. They just want to have the chance to put the secret sale to market now.

This is often tough for all concerned; the buyer, who is devastated, and the agent who has done all of the leg work pulling it together and may well lose the entire sale to another agency.

Sometimes the gazumping effort is the fault of the agent. If the agent has congratulated a buyer and informed them that the deal is done, it will be particularly upsetting for the buyer if the next call they receive from the agent is about another surprise offer. It is the responsibility of the agent to be very clear with the buyer when it comes to an acceptable offer, versus a done deal.

I have worked with countless great agents whose communication and clarity are perfect. From detailing how they will handle competing buyer offers, to defining clear time frames and agency protocol, these agents leave no doubt in their buyer’s minds about the opportunity they have and how their offers will be treated.

The most important thing that these types of agents express when calling with an update on an acceptable offer is the importance of understanding that the offer is not signed off and executed yet. Words they often use may be;

• In principle, it’s done but we need the vendor to sign it off,
• It’s looking good but we need to get it all on a contract first,
• I’ve called all the other buyers, and they’re out. But we still need to execute it,
• Congratulations, but don’t crack the champagne yet. I’ll call you when it’ exchanged.

Buyers may be surprised to know that agents who do congratulate them before the contract is exchanged and then subsequently field later offers often feel terrible. They can feel a sense of guilt, frustration, (for not anticipating a late offer), a fear of buyer upset, or a loss of face. I’m certain there are agents who may not care or feel these negative emotions, but many do.

It’s a hard lesson, and it’s one I learnt years ago as a young real estate sales cadet. I congratulated a lovely couple I’d been working with, only to have a builder call my mobile phone as I was en route to the property with the buyers signatures on the passenger seat of my car, awaiting the elderly vendor’s signatures.

I’d made the mistake of calling them before getting the vendor’s signatures, not after.

They were furious, devastated and hated me.

Sadly, though a common reason for gazumping actually sits at the feet of the buyers. The biggest cost to buyers and missed opportunity relates to prioritisation and tardiness. Particularly in a hot market, buyers who delay with making written offers can cost themselves the property. The following examples are the common ones we see;

• Not signing a prepared contract immediately. Whether it is because things are hectic at work, they are caught in meetings, their kids have a party, they are on a holiday break, or it’s late and they are tired and want to go to bed instead of waiting for the agent to finalise the contract, we always feel upset when another buyer comes along in that precise gap that they were unavailable for.
• Mucking around with verbal offers and resisting signing a contract. This is a huge mistake and we always say that a letter, email, text or phone call is not an offer. Vendors and agents take signed contracts seriously. All else represents risk for the buyer.
• Leaning on a legal rep who is unresponsive or hard to get hold of. We’ve seen legal delays open the opportunity to other buyers many times.
• Misunderstanding the agency protocol in relation to dealing with competitive buyer situations. Take auction properties, for example. Most agencies will have a clear process that enables all interested parties to have an opportunity to contest a pre-auction offer. Buyers who place the offer that ‘gets the property on the market’ can’t be upset with the agent or vendor if someone else’s offer is higher than their limit. Vendors who opt for an auction deserve the right to have a transparent and competitive process conducted by their agent, regardless of whether the sale date is earlier than the scheduled auction date or not.

Gazumping shouldn’t happen, but it does. Buyers who appreciate the required legal steps, fathom the risk of another buyer if contracts aren’t prepared yet, and those who move with stealth are less likely to feel the pain of being gazumped.