You like a property, so you make an offer. Before the seller accepts your offer, the seller may entertain offers from other parties. If another offer is made, you have been "gazumped".
What happens if I get gazumped?
If you are gazumped, you will almost always be given the chance to match or better the offer. You may also be given a form to sign, saying you acknowledge this to be the case. Obviously, you want to avoid any competition when negotiating the price on a property, but this isn't always possible. Your attempt to better your offer should consider what's important to the vendor. I would emphasize any positive attributes about you as a buyer, such as the certainty of the deal, ability to be flexible with settlement time frames, etc.
What if the seller verbally agreed to a price?
Firstly, it's important to understand what needs to be in place for a property contract to be binding. All property contracts MUST be in writing and signed by both parties. What does this mean for our written offers? Have you heard the saying, "Verbal offers are worth the paper they're written on"? Well, that's what they're worth - nothing!
More on verbal offers.
One of the traps many buyers fall into is believing they have weeks to secure a property, so they engage in verbal offers which draws out the process. What most people don't realise is that vendors rarely hear about the initial offers, and it's often just banter between agents and buyers. During these exchanges, the agent is learning more and more about you as a buyer. Many buyers don't realise they're revealing their price point without realising it.
Other traps?
Agents are required to submit all oral or written offers to their sellers. However, there is sometimes a time quantum involved that exposes your risk of gazumping. I was once told by an agent that her practice was to not present an offer for 2 weeks in the hope of getting further offers and increasing the price. Of course, S11 of the Real Estate Agency Practice Code of Conduct requiring that agents, "...must immediately communicate to the client each expression of interest, whether written or oral, about the sale unless the seller has given written instructions not to, e.g. below a certain price or not in writing.
Solution?
Here are a couple of tips to avoid being gazumped and what to do if you are gazumped:
1/ ONLY make written offers.
1/ ONLY make written offers.
2/ Never make sequential offers. Some agents will take your written offer, then ask you to submit a better offer without any written response from the vendor. Before you submit your offer, tell the agent that you only want to entertain written responses. That is, get the vendor to either accept or counter-sign the contract. This keeps the process alive.
3/ Specify a time frame for the vendor to respond. I usually specify a 24 hour response, unless there's a reason for delay (such as deceased estate with multiple beneficiaries and the logistics to get signatures will take time), in which case 48 hours might be more reasonable.
4/ Add a letter to your written offer, which highlights the reasons why a vendor should choose your offer over any other. The letter should mention things like the finance pre-approval, certainty of the deal, ability to be flexible with settlement time frames, etc. When writing this letter, it's also worthwhile considering the agent's position. The agent will be motivated to make a sale (certainty is usually more valuable to them compared to change in commission caused by a $5,000 change in price).
5/ Be likeable. If you come across as professional with a warm personality, the sellers may pick you over the other buyer if the offers are quite comparable. This can come across through your letter, but also in your general dealings with the agent.
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