Home' API Magazine : May 2014 Contents 79
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Partner of MBA Lawyers at the Gold Coast and the author
of the ‘Made Simple’ series of publications available from
So you need to become more educated about how to use
clauses and learn to use them to create deals that weren’t there
without these clauses.
When competing with other investors you must learn how to
stop being Dutch auctioned and gazumped and avoid losing the
property to another competing buyer. Creative use of clauses is
¿ GAZUMPING, DUTCH AUCTIONS AND COMPETING OFFERS
As you can be exposed to any one of these scenarios until
contracts are exchanged in the big eastern seaboard states you
need to learn more about them.
This comes from the Yiddish “gezump” meaning to cheat or
overcharge. People unfairly blame the agent for “fuelling the fire”,
but it’s usually the seller.
A seller today will be a buyer tomorrow so my point is that this
is just human nature.
Gazumping usually occurs when the market is moving
upwards; it rarely happens in a falling market.
While waiting for the paperwork to be done and contracts
to be exchanged the seller often will cultivate and encourage
offers from other parties. And at times when the market is really
moving ahead with a full head of steam, sellers may be playing
two or three buyers off at once. They’ll often give instructions to
their solicitor to prepare contracts for two or three prospective
buyers, waiting for either the first or higher offer to come in from
one of these. If you’re one of the people that misses out then it
will leave you with a deep feeling of resentment because of the
lost time that you’ve put into the transaction and, of course, out
of pocket expenses that are just thrown away (eg. due diligence
costs, pest and building costs, solicitor’s fees etc.). Gazumping
can’t happen in the big resource states because all offers are
made via Contracts of Sale. So to avoid being gazumped in these
other states you must get yourself into the Queensland/WA
position as soon as possible by:
> Instructing your solicitor to speed up the process to get to
exchange quicker; or
> Make your offer to buy via a short form of preliminary
agreement that it be legally binding, or best of all;
> Exchange contracts now, subject to a due diligence,
and carry out the searches after, like they do in Queensland
These have their origins in the tulip boom in Holland in the
17th Century. During those times, people were so frantic to
secure ownership of one tulip bulb they would pay up to five
times a man’s salary for one bulb at the peak of the boom. They
would often pay the cost of one Rembrandt painting (and yes,
Rembrandt was a famous painter even back then) for one tulip
bulb. The tulip boom is the first known study of the psychology
of booms and busts.
A Dutch auction is where an offer that you’ve made to buy a
property is used against you by being taken to another potential
buyer and used to encourage them to increase their offer above
the amount of yours. Then their higher offer is taken back to you
to encourage you to move higher. And on and on and up and up
it goes. It’s a bad place to be as an investor.
The solution for you if you find yourself in this position is to
make your offer subject to it being accepted by the seller by a
certain time and by a certain date. This will reverse the power
between you and the seller and move it to your side of the table.
Let’s say you find yourself in a real estate agent’s office on a
Saturday morning after inspecting a property at 9am.
You’ve instructed the agent to prepare the paperwork for you
to make an offer to buy the property and you quickly realise that
while you’re sitting there waiting for this to be done, there are
three or four other potential buyers through other salespeople in
the office wanting to make offers. How do you get yourself to the
head of the queue?
Once again, through creative use of clauses.
Add a simple clause like the following, this will bring the
matter to a head and nine times out of 10 will get you to the
head of the queue.
“The buyer’s offers contained in this Contract of Sale will lapse
unless accepted in writing by the seller no later than (insert time
and date) and written acceptance is communicated to the buyer
by that time on that day.”
¿ BECOMING A BETTER NEGOTIATOR
Finally, of all the skills that you acquire as a property investor,
learning to become a better negotiator is top of the list.
John Edwards, founder of Residex, says that “If you pay $5000
too much for a property, over the course of the average 25-year
bank loan you’ll pay an extra $40,000 for that property”.
Doesn’t this obligate you, as the custodian of this property
fortune that you’re creating, to become a better negotiator?
It’s a skill that you should ideally acquire yourself, but the
bottom line is that if you simply don’t have the time or feel you
don’t have the ability to acquire the skills, then at least secure
the services of a buyers’ agent. They will have the negotiating
skills that you don’t have.
But understand that you’ll pay a fee.
In my experience, though, they’ll save you more than
the amount of their fee if you source someone with a good
reputation and track record of helping clients negotiate deals. API
æIf you pay $5000 too much for a property, over the
course of the average 25-year bank loan you’ll pay an
extra $40,000 for that property.Æ John Edwards
LEGAL HELP DESK \\
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