It would serve the Real Estate Institute right is the ACT Legislative Assembly moved in to legislate against gazumping.
The institute says that gazumping is not a problem in the ACT. Ho Ho.
Have a look at the letters to The Canberra Times of anguished buyers who have shelled out for searches, building reports and the like only to find that the seller turns around to a higher bidder at the last moment. Have a listen to two Members of the Legislative Assembly – one from each side: Liberal Bill Stefaniak and Labor’s John Hargreaves. They say constituents often complain.
Perhaps the Real Estate Institute does not get complaints because people feel they will not get a result.
Precious little has changed in conveyancing practice in the ACT for 20 years – other than a bit of technology. Meanwhile, in NSW the pernicious practice of gazumping has been acted upon, but at the cost of a lot of paperwork beforehand.
This is not a rich vs poor issue, or legislation to deal with unequal contractors. People who buy OR sell dwellings can be rich investors or struggling families with hefty mortgages.
The fundamental flaw in the ACT’s system of conveyancing is that the time is too long between notional offer to buy and acceptance of the price and the enforceable legal reality of an exchanged contract.
So a buyer says, “Nice house. Here’s a cheque for a ‘holding’ deposit [or even the whole 10 per cent deposit]”. The buyer then does lots of building, pest, title and other checks a great cost. Too bad. It might take two or three weeks to draft contracts. In that time the seller can say, “Sorry, I have had a higher offer.”
In NSW, sellers have to have a contract ready to go. They have to provide a buyer with a title search and various certificates about land use and governmental orders that might affect the land.
Crafting anti-gazumping laws is not an easy task. Buying land is not like buying a car, a fridge or washing machine, where what you see is what you get and where inspection and testing is available cheaply and quickly before purchase. With land, it takes some time and quite a deal of money to inspect and find out hidden encumbrances. With goods, there is a legal requirement that they be fit for the purpose for which they were bought and that they fit the description. So if you find sawdust in the differential or bananas in the clutch you can get your money back.
More importantly, with land, if the buyer tries to overcome the possibility of being gazumped by signing an immediate contract, there is a danger of being stuck with the defects – termite damage, foundations gone, rising damp, an easement allowing sheep to pass through the property and so on. The law says you buy the land and whatever is on it in whatever state it is in.
In an ideal world, people would do the decent thing, and there would be no need for legislation. But this is an obvious example of market failure and a failure by the relevant industry body to address a serious problem.
Hargreaves got it right when he said, “If the Real Estate Institute won’t actually clean its own act up and impose these rules on its members, then we will do it for them.”
The real-estate agents could do the smart thing. They could avoid legislation, which will have hidden dangers, by imposing some ethical standards.
The pap response from the real-estate industry is that they are under an obligation to the seller to get the best price, which means they are duty bound to accept higher offers after earlier non-legally-binding offers.
Not so. The typical agency agreement says the agent is entitled to the commission as soon as the agent finds a ready and willing buyer. That happens well before formal exchange of legally binding contracts.
So, when an agent takes a “non-binding” holding deposit from a buyer, the agent has found a “ready and willing buyer”. When this happens the agent should take the house off the market and not accept offers from other buyers.
There is no obligation to accept offers from higher buyers because the agency agreement has been fulfilled by the finding of a ready and willing buyer. If the seller finds a higher bidder elsewhere, the real-estate agent should simply say, “I have already found you a ready and willing buyer, you must pay my commission. If you want to sell to some other higher bidder found by another agent, then you must still pay me my commission for the buyer I have found you.’’
It is in the hands of the real-estate industry. They should write into their agency agreements that once an agent has found a ready and willing buyer and the seller agrees with the agent to sell at that price, the dwelling goes off the market and there is no obligation by the real estate agent to entertain higher bidders. If the seller tries to take a higher bidder from elsewhere, the seller would be liable for two commissions.
If the real-estate industry deals with the issue, there will be no need for legislation.
If there is legislation, you can bet there will be unforeseen (and expensive) consequences – a mountain of paperwork and legislative requirements in addition to the fatuously ineffectual Environmental Efficiency Rating — which might be worse that the evil of gazumping that they attempt to overcome.