It is a common misconception amongst buyers of real estate in New South Wales that once a vendor has agreed on a price with you, then the vendor is obliged to sell the property to you. Unfortunately, that is not the case.
A vendor is only legally bound to sell the property to you once contracts have been exchanged – that is, both you and the vendor have signed a copy of the contract, the identical copies are physically exchanged, and you have paid a deposit. Until then, a vendor is entitled to enter into negotiations with any number of purchasers.
Therefore, even if you have negotiated to purchase a property and even agreed on a price with the vendor, the vendor can still decide to sell the property to another purchaser (usually for a higher price, or on more favourable terms) – typically referred to as “gazumping“.
A vendor can gazump you even if you have paid a “holding deposit” to the real estate agent – this payment has no legal basis and is usually only considered to be a sign of goodwill by the purchaser.
Of course, if you are gazumped, you are entitled to a refund of your “holding deposit”. However you are usually not entitled to be reimbursed by the vendor for any expenses you may have incurred in anticipation of purchasing the property, such as pre-purchase inspection reports and valuations.
It is because of this that buyers often will exchange contracts in a hurry so that the property is secured and not sold to anyone else, even though the buyer has not yet undertaken the recommended pre-purchase inspections and contract negotiations.
Many buyers prefer to exchange with a cooling-off period and then obtain their inspections and negotiate the contract during the cooling-off period. Although it must be noted that once contracts are exchanged, the vendor is under no obligation to agree to negotiate anything regarding the contract. Your only option if you do find something untoward with the property, as disclosed in an inspection report, is to rescind (that is, pull out of) the contract and pay a penalty of 0.25% of the total purchase price.