The law of contract states that for a verbal contract to be binding there must be, amongst other things, an offer, acceptance and consideration. However in terms of the sale of real property, until a written Contract of Sale has exchanged between the parties there is no binding contract.
A Contract can be exchanged with a “cooling off” period, or this can be waived if a signed Section 66W Certificate is attached to the Contract. No “cooling off” period is applicable to contracts exchanged at auction.
What is gazumping?
Gazumping is a term that buyers use when the owner accepts a higher offer from another party after the original offer has been verbally accepted by the vendor.
A real estate agent is often blamed for “gazumping”, but in truth their hands are tied by their obligation to the vendor. A sales agent is obliged to present all offers in writing to the vendor at any stage prior to exchange, as well as more generally to act in the vendor’s best interests. It is worth remembering that an offer at the same price, but with more favourable terms, may well be accepted by the vendor.
Therefore, it is in a purchaser’s best interests to have their offer accepted with a Section 66W Certificate and payment of 10% deposit to the vendor’s agent, enabling the contracts to be exchanged upon acceptance of the offer by the vendor. This would rule out the possibility of another offer being put forward.
From the vendor’s perspective, this also makes the offer real and tangible, rather than presenting an “in principle” offer.
What is best practice?The best practice for agents is to present offers in this way to a vendor, but also keep in mind that ALL offers must be presented to the vendor, whether they are on a contract or not. An agent cannot refuse an offer if it is not presented in this way.
If an agent is presented an offer without a Section 66W Certificate and less than a 10% deposit, the purchaser should be advised of the risk that there is the possibility that a higher offer could be received (and accepted) prior to exchange of contracts.
For this reason, we (as agents) advise purchasers to put their price “best foot forward” to secure the property.
Prior to exchange, an agent must ask the vendor whether they wish to accept the “bird in hand” or if they want the agent to contact other parties to see if a higher offer can be achieved. The vendor then carries the risk that, during this process, which is still prior to exchange, the purchaser may become frustrated and rescind their offer.
By Sarah Bester – General Manager of Ray White Double Bay