The Ethics and Legalities of Gazumping

Hi Crew,

I have been gazumped before and it left a bad taste in my mouth for a while. However one must realise that there are both ethics and legal requirements in place when it comes to selling and buying.

Now I find myself in a position where I may be tested. Where do I stand? All alone pondering the deep decisions? No. I have a reliable force of opinionated (and experienced) forumites ready to come to my aid. :D

Ok, here is the looming scenario. Purchaser 1 has made an offer that we have accepted early last week. As far as I know there has been no deposit submitted yet but contracts are being drawn up. Yesterday Purchaser 2 turns up for 1st inspection. She is made aware of P1 offer and is returning today for 2nd inspection to check if wireless BB operates adequately as she works from home. She is obviously keen on the place.

So if she offers higher what is the ethical way to deal with the situation? I am sure that prior to exchange I can sell it to who I want. But I am a guy who doesn't like to break a deal - man of my word so to speak.

Have you been in this position before? And what did you do? Advice appreciated. :)
 
I have a clear and very thin line when it comes to offers on poperty

As a buyer one cant expect a seller to hold a property no contractual agreement in most cases.

If it aint on that .2 mm paper its not an offer that you are bound to accept

beyond that, it coms down to your feelings as you say

ta
rolf
 
Sounds like you already know the answer.

As you state from a legal point prior to exchange you are free to sell to whoever you want.

From an Ethical point of view you have already accepted the first offer (which has prompted the buyer to have a contract drawn up which may already have incurred an expense by either their solicitor providing or reviewing the contract).

I think it would be unethical to sell to the second party you have agreed to sell to the first person. However being someone who has been gazumped and has gazumped another party. I would handle it in the following.

If I was the second person trying to purchase the property I would provide my best price up front on a contract to the seller in the hope they would sign.

If I was the seller I would stick to my deal of giving the first party the contract, but telling them of another buyer wanted the property (in case they go for a discount at point of building and pest) and would ask the second party to hold for a few weeks to see if the first persons finance has been approved and contract has gone unconditional.

My 2 cents worth.

Cheers,

Fourex.
 
Does this path have a heart?

Hi ya Rocky,

Have not been in that position on the selling side, however have been on the buying end and actually took a property off another (who had a verbal non-written offer) on the basis that there was no contract unless it was in writing. I offered more than their (non-written) offer and better terms for the vendor and put it in writing. Mission accomplished. ;)

So, unless the offer is in writing, from a legalities standpoint, there is no contract to consider and countersign by you as the vendor. If Ms. Wireless offers more then get it in writing and play them against each other, if you deem that appropriate.

As far as ethics go and remaining true to your word (whatever it is that you said to that initial party) , that is something that you and only you can answer my friend. There is no right or wrong answer to this from anyone's perspective but your own. Morality is defined in part by law from a criminal sense, however moreso from each person's convictions and beliefs on a personal and non-life threatening level IMO.

Perhaps following the questioning of Carlos Castenada may assist in your ponderings and how you play out this scenario in your own mind:


"Try each path closely and deliberately and ask yourself, and yourself alone, one question. Does this path have a heart? If it does the path is good. If it doesn't it is of no use."


Integrity to my mind involves an alignment between what we say on a conscious level, what we actually believe on a sub-conscious leve and what we actually do in our behaviour.

Tough call for you and you alone :cool:
 
I agree with you RS on your stance.
But, everyone know the rules & laws on gazumping, and REAs always use it to extract the best offer.
So buyers really can't plead ignorance, and until signed contracts have exchanged, the deal is not formalised.
So I would say the best thing to do if the offer is higher would be to give buyer 1 the opportunity to offer the same price since he spent $$,time & effort on the deal.
Of course buyer 1 can then turn into another "seller changed his price" victim and not go ahead and get all huffy.
So you need to make sure that the new offer is very solid and has substance behind it.
I'd go so far as "not subject to finance", easily retorted with "Are you buying with no money?".
I don't like it either, but we don't make the rules of the game.
 
You're a generous crew. Thanks for the input. I was waiting for Daz to come on and hammer me about not being in the drivers seat controlling the show. :D Anyway, I would have fully agreed with him. I have been so consumed with building the box that this one hit me unprepared and inexperienced. Amazing what happens when the mind is a bit fuzzy.

Going to watch Poirot. Will report back later with game plan. :)
 
Apparantly Ms Wireless will play her hand tomorrow. We are in the position where an exchanged contract pre June 30 will help us nicely with tax savings because the next duplex unit will be sold within the next financial yr. It is also in the purchasers interest as they will be eligible for the 50% SD discount. After June 30 it reduces to 25% discount. Ms Wireless could buy unit 2 OTP and receive 100% SD discount (according to new NSW budget measures) but would have to wait till early next year to take possession.

Like it has been suggested, if Ms Wireless wants it she will need to offer higher and sign an unconditional contract. Any higher offer will be mentioned to P1 to put some urgency in her purchase.

Will see what tomorrow brings. :)
 
Like most other ares of contract law, verbal acceptance of an offer to purchase realty (whether the offer was made verbally or in writing) should be enforceable and the vendor must be compelled to complete the sale.

I had a situation recently where I made an offer on a property (firstly verbally, then within 5 minutes in writing by SMS from my Blackberry) which was accepted by the vendor. After I received knowledge of the acceptance from the vendors agent, I immediately drove to the agents premises to sign the contract and pay my 0.25% deposit. This was on the Saturday afternoon.

I was advised by the agent that the vendor was in QLD on holidays but would be back on Monday afternoon to sign the contract. Prior to her signing the agent emailed me the contract which I passed on to my lawyer to get started on searches etc. The owner subsequently instructed the agent to take the property off the market and didn't sign the contract. Suffice it to say I was furious. Now I'm not sure if she received a better offer or not, and in any event she did nothing illegal, but I thought it was morally wrong what she did, especially since I incurred a cost in obtaining a strata report. I learned two lessons

1. If the vendor can't sign the contract in a reasonable time look elsewhere. I'd say reasonable time in this context would be the time it takes to drive to the agents premises immediately after accepting an offer.

2. Don't obtain strata reports/searches etc until you've exchanged.





.
 
Like most other ares of contract law, verbal acceptance of an offer to purchase realty (whether the offer was made verbally or in writing) should be enforceable and the vendor must be compelled to complete the sale.

.

Unfortunatley, being an exception to the rule of offer and acceptance, in regards to contracts for the sale of Real Estate, verbal contracts are not enforceable, as everything must be in writing...

Boods
 
Rockstar,

The 1st buyer is drawing up contracts, yet they have not put down a deposit. I understand that they might need to see their solicitor on Tuesday to draw up a contract (I assume they want special conditions) but it doesn't stop them putting down a deposit.

You don't know if they are telling you the truth, they could be looking at other properties and not come back to sign at all.

We have purchased many properties and most REA have made it very clear that until the contracts are exchanged they do not consider the property sold. In fact they have gone out of their way to get us to sign on the line.

I have an easy rule. Whoever signs the contract first is the buyer. If they had and then the 2nd offer came in before you signed then you have a legal vs moral dilemma.

Regards

Andrew
 
I have an easy rule. Whoever signs the contract first is the buyer. If they had and then the 2nd offer came in before you signed then you have a legal vs moral dilemma.

Thanks Andrew,

That's easy and straightforward. Will file it in my brain. :) Sales advice was issued last Tuesday. Will chase up the status of contract tomorrow. I assume it has been given to purchasers lawyer ( their office is next door to my lawyers office which is handy for quick communications)
 
Like most other ares of contract law, verbal acceptance of an offer to purchase realty (whether the offer was made verbally or in writing) should be enforceable and the vendor must be compelled to complete the sale.

That's not how it works and just as well. Can you imagine the field day that the legal eagles would be having as they notch up time credit in 6 minute quanta to clarify what "he said" aginst what "they said.

I had a situation recently where I made an offer on a property (firstly verbally, then within 5 minutes in writing by SMS from my Blackberry) which was accepted by the vendor. After I received knowledge of the acceptance from the vendors agent, I immediately drove to the agents premises to sign the contract and pay my 0.25% deposit. This was on the Saturday afternoon.

I was advised by the agent that the vendor was in QLD on holidays but would be back on Monday afternoon to sign the contract. Prior to her signing the agent emailed me the contract which I passed on to my lawyer to get started on searches etc. The owner subsequently instructed the agent to take the property off the market and didn't sign the contract. Suffice it to say I was furious. Now I'm not sure if she received a better offer or not, and in any event she did nothing illegal, but I thought it was morally wrong what she did, especially since I incurred a cost in obtaining a strata report. I learned two lessons

1. If the vendor can't sign the contract in a reasonable time look elsewhere. I'd say reasonable time in this context would be the time it takes to drive to the agents premises immediately after accepting an offer.

My addition is to not give the vendor reasonable time. Three days is excessive time in my opinion.

I usually give vendors a couple of hours to countersign or I make it VERY clear that I am also hunting elsewhere. Creates a little sense of urgency in the matter and allows less time for offers to be played against others. Similarly I do not allow another inspection to have taken place before my offer curfew expires.

There are fax machines that can be used. Also, in the event the rea calls you and you are successful in you purchase and they congratulate you.....don't pop those bubbly corks too early unless you've sighted the signed contract. I like to receive the countersigned contract (by all parties that need to sign) by fax or in person if the rea office is nearby. VERIFY everything.



2. Don't obtain strata reports/searches etc until you've exchanged.

Of course don't spend excessive amounts on DD unless the property is under your control. Doesn't mean you shouldn't do prelimnary DD yourself, just leave the meaty/expensive stuff until it's your to warrant the cost of searches and other inspections.





.


Thanks for sharing your candid series of events Ozmale 42. Always handy for all to learn from.

Until it's in writing there is no firm offer and until it is countersigned (accepted in writing) by all parties that need to sign there is no contract in the eyes of the law.
 
Similarly I do not allow another inspection to have taken place before my offer curfew expires.

How do you manage that?

If I was a vendor I wouldn't allow a prospective buyer to dictate to me if another inspection was to take place by a different party.
 
Last edited:
Similarly I do not allow another inspection to have taken place before my offer curfew expires.

How do you manage that?

If I was a vendor I wouldn't allow a prospective buyer to dictate to me if another inspection was to take place by a different party.

Hi Amadio

I don't word it in that manner, that is merely my explanation for the purposes of this forum.

I always have numerous properties that I will consider. As an investor I don't fall in love with properties, only the numbers and potential and if I am endeared to anything it is the dirt that the IP sits on. ;)

I give them several hours to say yay or nay; if it's the latter, then I'm off.................next. :)

I am not dictating anything to the vendor, they can either sell or not sell. Their choice.
 
Update

Well Ms Wireless did finally come back last week with an offer 1k above P1 with same conditions. At that stage I had the opportunity to say 1st in 1st served. I reaffirmed the status of P1 whom I emotionally favoured :)() as she was really keen on the house and had paid for her valuation. I never did give Ms Wireless the opportunity and contracts exchanged with P1 today. Next time I will play the game by Bargain Hunters' rules if there is a second or third party involved. But for now - it's time to go shopping for another site. ;)
 
Advice please. Is this gazumping?

I am a recent widow - a novice house seller . Six months ago I received an unsolicited offer on my house. The purchaser told me he was adding to his propery portfolio and would not need to sell in order to complete. He told me he had obtained a mortgage and all was plain sailing.He did not say the mortgage was on my property. He did not say the offer was conditional. I verbally agreed He said he would put a 10% deposit down up front and would delay completion for 6 months to enable me to find another property. He also offered the option of staying on for a further few months at a peppercorn rent. Nothing happened for over four months; he did not put down a deposit, I heard nothing from him - I looked at property but was unable to give a firm commitment so lost several. For one of these properties I would have needed to rent while renovation was carried out. When I asked him about renting back after completion he said it would be at full commerial rent - this surprised me as he has originally mentioned peppercorn rent but I didn't want to rock the boat and anyway I lost the house so didn't need to rent.

Last week a valuer visited my property and I discovered this was for my buyer to gain approval for his mortgage. Yesterday I received a letter from him saying the valuation was lower than his original offer and therefore he would have to reduce his offer. As it happens two weeks previously I had received - again unsolicited - another offer. This was a cash offer from someone both I and my solicitor know is totally genuine. I had turned it down on the basis that I had already accepted another offer. When my first buyer lowered his original offer I told him of the second offer. He immediately raised his offer back to the original figure(lower than the second offer) and became vey bullying and intimidating - even threatening to wreck my reputation to the point where I wouldn't be able to stay in the area if I didn't sell to him and telling me not selling to him would be unethical and immoral. He left telling me to examine my conscience. I was very intimidated but luckily I had a friend with me who prevented me from agreeing to anything.

I am a very principled person and I am extremely distressed at my dilemma. I place great importance on being fair. I know how much he wants the house. My solicitor, my children and friend are all telling me to accept the second offer which we know could complete in very short order. My original buyer says if I do he will tell everyone I gazumped him and I have no morals or conscience.

What I want to know is - if I accept offer number 2 is this gazumping?
 
What I want to know is - if I accept offer number 2 is this gazumping?

Absolutely not!
And after any type of bullying you should immediately cease the conversation, add $30k to the original price and say "let me know when you have 20% deposit and ready to sign the unconditional contract. Goodbuy".
He's stuffing you around.
And btw it's not you who guzumped him anyway, though I would've asked him to please put it in the local paper and make sure they spell my name right. lol
 
Absolutely not!
And after any type of bullying you should immediately cease the conversation, add $30k to the original price and say "let me know when you have 20% deposit and ready to sign the unconditional contract. Goodbuy".
He's stuffing you around.

Pennyb
I agree with Piston Broke, sell to second buyer as first is trying bullying tactics.

Also speak to your Solicitor about 1st buyer's behaviour as he has verbally threatened you.


Kind Regards
Sheryn
 
In the UK I was gazundered .. something not possible I think in Oz, where the buyer lowers their price at the last minute since they never have to commit or pay any deposit at any stage. And since conveyancing takes many months (7 months for me after finding a buyer in 2 days...) you tend to accept the gazunder since you're so fed up with the whole crappy process. it sucks.
http://en.wiktionary.org/wiki/gazunder
 
Top