Estate Agent’s “Gazumping” Clause
OPINIONby Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd
Consumers should take care if they find that a “gazumping” clause has been inserted into the real estate contract.
Ian Reid is a Melbourne estate agent whose “Ian Reid Vendor Advocacy Australia” website boasts:
“Ian Reid’s career in real estate spans almost 30 years…Over those years, many thousands of clients have come to rely, time and time again, on Ian’s advice, profound real estate knowledge and warm, personal approach.Within the real estate profession itself, Ian has also come to be recognised as an accredited trainer and coach. Ian’s focus has been directed at both individuals and real estate corporations across the country, in delivering new age marketing strategies designed to improve the real estate industry standards.”
Having recently experienced what we will call the “Ian Reid Strategy“, we have to ask Ian Reid if “gazumping” is one of his “new age marketing strategies designed to improve the real estate industry standards.”
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Another form of private auction? |
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Where does it come from? |
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Who benefits from it? |
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A Form Of Coercion? |
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An Awful Choice |
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Conclusion |
Another form of private auction?
We have previously examined the problem of private auctions in Victoria, and the way they expose consumers to risk. It would appear that the “Ian Reid Strategy”, as we will call it, could be regarded as another form of private auction.
The “Ian Reid Strategy” involves the insertion of a special condition into the sale contract. The special condition allows a latecomer to the sale to submit a “bid” to the vendor. If the latecomer’s bid is on “more favourable terms” than those in the existing contract, the vendor can invite the purchaser to match the bid. If the purchaser fails to match the bid, the vendor can cancel the contract.
As with other private auction situations, it is possible for a contrived offer to be put to the purchaser, with a view to having the purchaser increase the price or alter the terms of the contract. Such conduct would probably constitute a criminal deception.
Where does it come from?
Our understanding of the “Ian Reid Strategy” is that the special condition is attached to a sale transaction at the instigation of the estate agent.
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Ben Reid, the estate agent in control of the transaction, informed us that he had explained the special condition to the vendor and to our client. However, our client was shocked when she was made aware that she could be “gazumped“.
After discussing the transaction with Ben Reid it soon became apparent that it was his idea to attach the special condition to the transaction, and that neither the vendor nor the purchaser had much of a say in the matter.
Who benefits from it?
The estate agent will probably argue that the purpose of the “Ian Reid Strategy” is to benefit the vendor by ensuring that the vendor is always able to take advantage of higher offers.
Our view, however, is that the “Ian Reid Strategy” benefits the estate agent rather than the vendor. We believe that the “Ian Reid Strategy” allows the estate agent to pacify a disgruntled vendor by pointing out that a sale at a low price, or on unsatisfactory conditions, can be bettered at a later time. In this respect the “Ian Reid Strategy” could be regarded as just another tool for conditioning the vendor.
The “Ian Reid Strategy” allows a purchaser to believe that she has purchased the property, while allowing the estate agent to snatch it back to again. The estate agent is able to secure the commission by forcing the purchaser to declare the contract unconditional. Alternatively, the estate agent can secure the commission by gazumping the purchaser, and reselling the property to a later purchaser who offers an unconditional sale.
It is possible that the “Ian Reid Strategy” could actually deter some purchasers, who are not prepared to buy on such unfair terms. Such purchasers may be content to consider other options, feeling safe in the knowledge that they can gazump anyone who purchases the property before them. Such a situation is unlikely to please an informed vendor.
It seems that, while the vendor and gazumped purchasers may end up disappointed, disenchanted and at loggerheads through the “Ian Reid Strategy”, the estate agent can be assured of a secure commission.
A Form Of Coercion?
We believe that the “Ian Reid Strategy” could be viewed as a form of consumer coercion, forcing the purchaser to limit her safety options in order to avoid being gazumped.
It should be noted that the the “Ian Reid Strategy” requires the purchaser to obtain legal advice before signing the contract. This eliminates the 3 day “cooling off” period, and minimises the likelihood of complaints about misleading and deceptive conduct.
Is it likely that the solicitor will advise the purchaser to have the “Ian Reid Strategy” condition removed from the contract? Well, we tried this, and experienced angry resistance from estate agent Ben Reid.
An Awful Choice
The “Ian Reid Strategy” may place a purchaser in the position of having to make an awful choice. The purchaser may have to choose between the risk of signing an unconditional contract, and the risk of having the property snatched away by a latecomer who is prepared to go unconditional. What is the purchaser to do?
The confusion and stress created by such a dilemma can easily be exploited.
And what of the purchaser who has bought on the condition that their own property sells by a specified date. Consider the situation where the purchaser enters into an Exclusive Sale Authority with an estate agent, and spends thousands of dollars on advertising. It is even possible that the purchaser’s home could be sold. But before she can confirm to Ian Reid that her purchase contract is now unconditional she is gazumped, courtesy of the “Ian Reid Strategy”!
Conclusion
In our veiw, the “Ian Reid Strategy” is unnecessary, and dangerous for vendors and purchasers alike.
Vendors and Purchasers should always be wary of any estate agent who attempts to insert special conditions into a contract, and should seek legal advice from a qualified lawyer before signing anything.
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