The challenges facing buyers when purchasing property, are hard enough to navigate under normal circumstances. But a market with low levels of supply of housing stock, and high levels of buyer demand, can create its own unique set of challenges.
Where to buy? How much to pay? How quickly to put in an offer and then proceed to exchange of contracts? These are the sort of questions that every potential buyer has to address in the process of negotiating to purchase property.
In a booming market such as the conditions we are experiencing currently in the Lithgow region, buyers are faced with additional issues such as how to respond when other buyers are interested in the same property? In recent weeks I have encountered buyers frustrated with how quickly properties are selling, and how difficult it is to know how to respond to this booming market.
The issue of guzumping is something which buyers are uncertain about- what it means, what are the legal implications and how to avoid it?
Essentially, gazumping is when a buyer has had an offer accepted on a property and then the vendor sells it to someone else. It is not necessarily always about price. A vendor may choose to sell to another buyer over timing, conditions or price.
Legally a property is not sold, until contracts have exchanged (contracts signed by both the buyer and the seller and a deposit paid). Contracts generally exchange unconditionally on a full 10% deposit, but in a fast moving market the buyer and seller may agree to exchange on a 0.25% deposit with a cooling off period.
After an offer is made, the purchaser will usually engage a solicitor or conveyancer to review the contract, and may have a pest and building inspection or bank valuation done, as well as other checks and enquiries. If this is done prior to contracts exchanging, the property is still on the market.
During this time other buyers may be making their own enquiries and submitting offers to the vendor. According to the NSW Department of Fair Trading an ‘agent is legally obliged to pass on to the vendor any further offers received for the property up until the exchange of contracts.’
Contrary to what some may believe, gazumping is not illegal, but it can certainly be unpleasant for a buyer when they have made a decision to purchase, only to be disappointed when the vendor sells to someone else.
President of the Real Estate institute of NSW, Mr Tim McKibbin advises that buyers wishing to avoid gazumping should ensure contracts are signed as quickly as possible by both parties.”Unfortunately until you have a signed contract you don’t have much at all,” Mr McKibbin said. “What can happen is someone from both sides may find a better offer. And they’re entitled to.”
So what tips can assist a buyer to understand the process and avoid disappointment? In a hot market where properties are selling fast, it is really important for a purchaser to be prepared.
Do your research and understand the market you are buying in, that way you can act with confidence, when you find the right property. Understanding recent sale prices, so you can make an informed decision about how much you are prepared to pay is key.
Have your finance lined up and ready. Communicate regularly with your bank throughout the process, as waiting on finance and bank valuations can be frustrating and can lead to the property being sold to someone else while you wait on paperwork.
Understand the law and what is required for you to secure your chosen property. Ask your solicitor or conveyancer to explain anything you are unsure about, and get a copy of the contract for sale as soon as possible.
Don’t procrastinate and be prepared to commit if you find what you are looking for.
Most importantly, have an honest and open line of communication with your real estate agent from the outset. With a clear understanding of the process, it is possible for buyers to navigate through the tricky waters of a hot market and successfully purchase their property of choice.