Ep 2. Gazumping is a Dirty Word
This episode will touch on different real estate terms, as well as auction campaigns and private treaty sales.
Here’s what you’ll learn from today’s episode:
Real estate terms.
Auctions campaigns.
Private treaties.
Holding deposits and ‘Gazumping’.
Cooling-off periods and ‘66W’s.
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
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Hi and welcome to another episode of Buy Your Side, the Property Buyers podcast, ask me anything you've always wanted to know about buying property, and I will help you buy better. So today I thought I'd touch on a number of real estate terms that you may have heard, but were not sure what they meant. I'm talking about the difference between an auction campaign and a private treaty sale, and in particular, when it comes to gazumping. I know it sounds like a fun word to say, but actually it's not all that fun at all.
So let's start with auction campaigns. So typically an auction campaign is a marketing or advertising campaign that a vendor uses to sell their property. Obviously, they put it on all the real estate portals and the agent's domain, and at the end of it, it's usually a set time. So here in Sydney, Australia, it is typically a four week campaign, typically with a Saturday open and then a midweek open and potentially also private inspections in between. So the beauty of that for the vendor is that they will have an outcome at the end of a set period of time. An auctioneer is booked for an appearance either at the property, which is what they call an auction on site, or an auction in rooms where it's generally at the sales agent's offices.
Now, the difference with a private treaty is that the house or apartment is for sale and that can take as long or as short as it takes until the vendor receives an offer that they are happy to accept. The difference also between these two campaigns is that when it is an auction campaign, when you buy at auction as a buyer, you buy, what they call, unconditionally. So you are locked in, and if you decide to change your mind for whatever reason, you actually will lose your deposit. Now, in this case, in New South Wales, in Australia, that is a 10% deposit. So that's a significant amount of money that you would be walking away from. So it's essential to do all your due diligence prior to going to auction, and you are 100% sure that you wish to proceed and you know, the good, the bad and the ugly about the property.
With a private treaty however, because it isn't a set term, you actually normally get a cooling off period. Depending on the state that you're in or the country that you're in, that period can be a different length of time and is something you can negotiate with the vendor. So the cooling off period is a specified period of time after contracts are exchanged. So both vendor and buyer have signed contracts, they've agreed on a price, and the terms can be agreed upon in that cooling off period because that's when the buyer has the opportunity to do their due diligence. So in New South Wales, generally, that cooling off period is five business days. So you could make your offer subject to finance, for example, if you haven't got your pre-approval in place or subject to the building and pest and other things like that. The deposit in a private treaty with a cooling off period is also not 10 percent, it's usually a lot less and depending on the state, it can be a lot less. So you would only lose, for example, in New South Wales, you would only lose 0.25% percent of the purchase price, which is still, you know, thousands of dollars, but it's a lot less than if you were to lose your 10% at an auction.
Now, what I wanted to touch on today is a term called gazumping. So gazumping is where the vendor has agreed to sell the property to one party and then turns around and sells it to another party. So this generally occurs, obviously, when the vendor receives a better offer than the one that's on the table, and this can also occur when even the holding deposit has been paid. So let me clarify one thing for you as well. A holding deposit is, as far as I'm concerned, a fake term sometimes, you know, particularly in the new apartments, agents say, "well, you can pay a holding deposit and, you know, you can be guaranteed that you get that apartment". But that's actually not the case at all. The holding deposit is not worth the paper it's written on. So they can give out 10, 20 different holding deposits to everybody. So 10, 20 different people can pay a holding deposit into an agent's trust account and they can sell to the twenty first person that comes through the door. So be mindful of that. But when gazumping happens, it's the period between having your offer agreed and the point of exchange when everybody is locked in and contracts have exchanged.
Now, this is different in different parts of Australia, but the trick is to make the time between the offer and the unconditional exchange to either be simultaneous or as short as possible. So you do not give other buyers the chance to get a foot in the door and potentially up the offer or make the vendor change their mind. So from my perspective as a buyer's agent, the one thing that I would say as a tip for you, if you were thinking about making an offer to a property that is in an auction campaign, first and foremost, you will need to waive the cooling off period because an agent will not accept an offer on a property that is supposed to run to auction without waiving the cooling off period, and a way to do that is to add to what they call a 66W to the contract to waive the cooling off period and it becomes unconditional on exchange, just like at an auction. So it's crucial, of course, that you do all due diligence prior to making an offer. So you get your contract reviewed, you do your building and pest. You do your pricing research to make sure that there's not going to be a shortfall when it comes to valuation with your bank. If you're buying an apartment, you make sure you get the strata report reviewed. Very, very important. But you also look at, for example, DA checks in the surrounding area. You know, is there going to be a massive apartment building built right next door or has the neighbouring property been approved for a child care centre? Or is there a major infrastructure project happening underway or tunnels underneath or whatever the case may be? Now, you can do a lot of this yourself. A lot of this is about going on Google and researching everything. But you could also use a buyer's agent, of course, but it is crucial you do all that work prior to making an unconditional offer. And that's the surest way to guarantee that you are not going to get gazumped.
When it comes to buying in a private treaty, you are in theory allowed that five day cooling off period, you are locked in both the buyer and the vendor. But I would say that, really it's very hard to negotiate with a vendor once you've exchanged, because, if you find something in the building and pest report, for example, when you're doing that due diligence, it's very hard to nibble money off that original purchase price. So even in a private treaty, I would recommend that you do your due diligence prior to making an offer. So unfortunately, gazumping is legal in most parts of Australia, and I certainly know in the UK as well. It has happened to me. I was actually gazumped by a Baptist priest of all people. I thought that there was something that wouldn't be OK with him and his church, but apparently it was OK. But that was something that was very painful, to me and my partner at the time. We really had our hearts set on this property and it was something that obviously we learned the hard way. So do make sure that you are across all the paperwork and that it is actually signed, sealed and delivered, so to speak, and neither party can pull out.
So a couple of things to think about. Work with your solicitor, make sure that your solicitor has done the review. They can potentially give you advice on the best way forward. Otherwise work with a buyer's agent as well. Obviously, you still need your solicitor or you conveyancer to do the contract review, but a buyer's agent will be able to guide you as to how best approach to your situation, because a lot of selling agents will work differently and buyers agents usually have really good relationships so they can give you the insider knowledge as to how to get your proverbial ducks in a row. Also, be prepared to pay more if you have to. You know, if someone comes in with another offer, be ready for that to happen if you haven't exchanged yet. So if you are not buying at auction, beware that gazumping may happen. But now you know what it is, what you can do about it. So hopefully this episode has helped you think about what to do moving forward.
So thank you again for listening to the Buy Your Side podcast. This podcast is all about helping buyers buy better. So if you have any questions for me, but are afraid to ask, do you drop me a line at hello@buyyourside.com.au. Thank you so much for listening. Until next time.