Make gazumping your friend
There’s nothing like the satisfaction of finding the perfect property and locking in the purchase.
A home in a great spot and at the right price warms the heart. You’ve made the offer and it’s been accepted – tied in a bow and presented like a gift basket.
But here is a sting in the tail for the inexperienced purchaser, because you may be about to learn the hard way how defeat can be snatched from the jaws of victory in the New South Wales property game.
It’s that great disappointment – ‘Gazumping.’
While gazumping sounds like the name of an amusing clown, it’s a very serious matter that frays the nerves of property buyers.
Under NSW legislation, a contract to purchase a slice of real estate isn’t iron clad until documents are exchanged and the deposit has been paid.
That means the agent, who up until now may have seemed like your best mate, can use your offer as leverage to seek something better from other interested parties, and if their counter is more tempting, you may be left out in the cold.
And it isn’t just the agent being sly because he or she is legally obliged to pass on to the vendor any further offers received for the property up until the exchange of contracts.
The practice of gazumping certainly plays to the advantage of the seller. It allows an agent to “shop the offers” and maximise the result. An agent will happily pinball between prospective buyers asking each to better the previous until in the end, there is only one.
It sounds like buyers are on the lousy side of this seemingly unfair arrangement, however smart purchasers can use gazumping to their advantage by taking steps to ensure they’re ready to do what’s needed to lock up the contract.
Be “deal” ready
If you can move fast, chances are you’ll have the contract locked away before any other buyers know the home is off the market.
Once you’ve got that verbal agreement, don’t lay around wasting time and basking in the glory of your obviously superior negotiation skills. Hustle!
Get into the agent’s office and sign those documents, have your deposit at the ready and make sure the deal gets done.
Moving fast is smart business.
Pre-approval is for winners
Pre-approval on your loan is a must when dealing in the fast-paced NSW market.
A pre-approval answers so many questions for you and the seller. You know your budget and can make your offer with confidence, aware that the bank is unlikely to knock you back as long as it all values up.
The other advantage of pre-approval is you don’t have to make your offer subject to finance and as you’ll see from my previous blog, this puts you well ahead of more coy competition.
Best off all, attach a 66W which means you waive the cooling off period. This sort of trouble-free approach is sure to get noticed by the seller.
Got brass in my pocket
Along with being deal ready is being deposit ready.
Contract law require “consideration” to make the agreement binding, and for you as the purchaser that means laying down some dollars to lock it in.
Under NSW rules, you can put down as little at 0.25 per cent of the purchase price as deposit. It’s a non-refundable amount but it’s necessary – and you must have it to hand immediately. Make sure your bank check or money transfer will go through without a hitch because the deal isn’t struck until you pay your part.
Set a time limit
This is a bit of a hardball technique but can be effective when you know you’ve made a strong offer. Sign up at a figure but make it clear it’s only good up until a set time – perhaps, 5:00pm the next day. That way the vendor is forced to respond quickly and may not have the opportunity to seek further bids from less prepared potential buyers.
When it comes to negotiating on real estate, having more than one property of interest is one of the strongest positions a buyer can have. When the seller gets coy, toey or just plain ridiculous with their counter, there’s comfort in knowing other properties await. It shows you mean business and aren’t prepared to hang about for the hurdy gurdy of offers from a string of buyers to stop spinning.
Know your upper limit
Decide on your line in the sand and get yourself into the mental space to go there if you need to.
This means thinking long and hard about where finding that extra dollar or compensation on conditions becomes the straw that cripples the camel. You can always start low, but when it gets the pointy end of discussions, you want to be able to give a quick ‘yes’ or ‘no’ to any counter by the vendor. Also, if the competition is tough, you can front your very best offer at a moment’s notice without having to think for too long.
Know the agent
This is where a great buyer’s agent is worth their weight in gold.
Nothing beats experience – and this includes dealing with the variety of agent who operate in our markets, because each has their own way of playing the property game.
Based on past experience, buyers’ agents are fully aware of how each agent will likely approach a deal.
I’ve had that situation where an agent has thanked me for my offer and then told me he would be shopping this amount to his other prospects before the seller signs. There are professional but not too subtle ways of communicating to agents that you’re not happy about this – and given we are likely to deal with this agent again in the future, he’ll realise we won’t soon forget this slight.
We also know other agents who are just keen to get a deal done.
Having an ongoing business relationship with agents has worked to our advantage numerous times. Most effectively when I’ve spotted a gazumping process forming, I’ve been able to talk to agents and say, “Just give us the last bite of the cherry – at 4:45 on the Friday, let us know what we have to beat to get the deal done.” They’ll often do it because they see us as a repeat buyer – they don’t have to do it, but they will because they want to do us a favour.
Gazumping is a fact of life when it comes to buying in the NSW, but by being aware of the process, knowing when to pony up with your best offer and working with experienced advisors, you can use gazumping to your advantage and leave the competition stunned while you walk away with the prize.