Making an offer

Making an offer on a residential property is a significant step. Before submitting your offer amount to the agent or vendor (seller), it makes good sense to be well prepared for what might follow.

Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor. Doing this prior to making an offer will save time if you need to move things along quickly.

Paying an expression of interest

Once you have made an offer on a property, you may be asked to pay an initial deposit as an expression of interest. This won’t mean that the property is yours or that it gets taken off the market. It only proves to the seller that your offer is serious. The seller or agent can take as many preliminary deposits as they like for the one property. However, when you pay this deposit, the agent must provide you with a receipt and tell you in writing that:

  • they have no obligation to sell the property to you
  • you have no obligation to buy the property
  • they will refund your deposit if you don't end up entering into a contract to buy the property.

The agent must also let you know if someone else makes a later offer on the same property.

It is important to remember that the agent selling the property is not working for you, the buyer, but for the seller.

Offer accepted, but it's not yours yet

If your offer is accepted, be ready to sign the sale contract and proceed through with the exchange process. Do not sign or exchange the sale of contract until you have discussed it with your solicitor or licensed conveyancer.

Prior to the exchange of the contracts, the vendor is free to negotiate with other purchasers for a higher offer. If the vendor accepts another offer and exchanges contracts with that party, any purchaser who misses out on the property despite having a verbal agreement to buy it, is gazumped.

Gazumping

Gazumping occurs when you have a verbal agreement  with an agent or seller to buy a property at an agreed price but the property is not sold to you in the end. This usually happens when the vendor (the person selling the property) has decided to sell the property to someone else, usually for a higher amount.

If you are gazumped, neither the agent nor  the vendor is obliged to compensate you for any money you may have  spent on legal advice, inspection reports, finance application costs or  inquiries. However, your ‘expression of interest’ payment (if you have  paid one) must be refunded to you in full.

In NSW, a property sale is generally only binding on the vendor and buyer when contracts are exchanged between the two parties. Exchange occurs when the vendor signs their copy of the sale contract; the purchaser signs their copy, and the two parties ‘exchange’ their signed contracts. It is usual at this time for the purchaser to pay a deposit, usually 10% of the purchase price.

Protect yourself

Some ways to protect yourself from being gazumped are:

  • Always have your loan finance pre-arranged, and ensure you can pay the 10% deposit, by Bank Cheque or a deposit bond so there is no delay before attempting to exchange contracts on a property.
  • Obtain a copy of the sale contract as soon as possible and have it examined by either your licensed conveyancer or solicitor.
  • Seek to exchange contracts with the vendor as soon as possible. Anyone puchasing residential property has a five-day cooling off period commencing from the time of exchange of the contracts. Only the purchaser can waive the cooling off period and it can be extended by agreement. During this time, you can do a building and pest inspection and have the contract examined. However, if you rescind the contract during this period, you forfeit .25% of the purchase price to the vendor, as the property has been taken off the market for a period of time. The amount forfeited is recovered from the deposit you paid under the contract. If the amount of the deposit is insufficient, you will have to provide the necessary additional funds. You should find information relating to the cooling off period in your contract.
  • Negotiate firmly with the vendor or real estate agent. Insist on the agent passing your bona-fide offers to the vendor and obtain written proof of this occurring. The law requires agents to do this. Be ready to exchange with a signed copy of the contract and follow through on the exchange process yourself or with another trusted person to ensure exchange. If you are advised that other offers have been made, demand to see written evidence. If you are certain that you want the particular property, be ready to possibly increase your purchase offer to the vendor.
  • Be aware that the vendor is not generally compelled to sell to any specific person and can change their mind at any time prior to the exchange of contracts. Vendors may not necessarily sell to the highest offerer, but may accept a lower offer from a prospective purchaser.