A deal's a deal - until you get 'gazundered'
It's unpleasant and unethical, and it's back. The monster that strikes fear and dread in the hearts of UK homeowners struggling to sell their properties is rearing its ugly head again.
It's called "gazundering", a practice that is common in a weak property market. It involves the buyer demanding a big drop in the agreed price just before contracts are exchanged, forcing the vendor to either accept the lower price, or remarket the property - almost certainly breaking off the whole chain of connected sales and purchases.
"Sellers regularly ask for higher prices, so why shouldn't buyers exploit the market, too?" says the website firsthomebuyer.co.uk, which encourages gazundering. Proponents say gazundering is no different from the property boom practice of gazumping, when home owners renege on an agreed sale for a higher bid.
Unlike in Scotland, where a buyer's offer is legally binding, neither gazundering nor gazumping is illegal in England and Wales. There, the buyer or seller can withdraw or demand a price increase or reduction until the exchange of contracts.
"Both practices are nasty," says Kay Lindoe, 56, whose offer for a two-bedroom place in Somerset in the west of England has just been accepted. "Come clean from the start. My offer was £5,000 (Dh28,520) less than the asking price and the owner agreed to it. We're both happy with it and there's no need to pull a trick at the last minute.
"The government should make verbal agreement between buyer and seller binding, as they do in Scotland. Buying a house is stressful enough without having all this uncertainty."
Mrs Lindoe, a widow, is downsizing from a four-bedroom house in Essex, sold last year, which has enabled her to buy the new property with cash. With no mortgage to worry about and no chain linked to either her or the vendor, the transaction should be straightforward.
Not so for the Wilsons. After they had turned down several offers for their three-bedroom property in Danbury, Essex, the chosen potential buyer wanted a lower price at the last minute, threatening the collapse of a long chain.
"After thinking for a while about it, we decided to call his bluff," says Karen Wilson, a mother-of-two. "We rejected his new offer and put the house back on the market. He came back immediately. We could have increased the price, seeing how he tried to pull a fast one. But in the end, we sold it at the original price as we didn't want to be like him and there was always a risk the next buyer would do the same."
A survey by the personal finance website fool.co.uk in the early stages of the world economic crisis in 2008 found that six out of 10 people thought gazundering was unethical, but 94 per cent would try to push an offer down at the last minute if under pressure. Reasons included a cautious mortgage lender's valuation, the buyer's fear that the value of the property had fallen further since his initial offer, or that the property needed more repairs than expected. On the other hand, buyers simply want to take advantage of a housing market that economists say is in the midst of a "double dip", with a drop in mortgage approvals driving property prices even lower.
In September this year, net lending (minus redemptions and repayments) slumped to just £112 million, down from £1.62 billion in August. The latest Bank of England figures show that just 47,474 home loans were approved in September, the lowest level since February and the fifth consecutive monthly fall. Meanwhile, property values fell 0.9 per cent in October from September, faster than at any time since January last year, according to the property intelligence group Hometrack.
No one's happy to find another spoke, such as gazundering, in the economic wheel. The subject has elicited column inches of newspaper articles and individual and industry blogs condemning the act of gazundering and giving advice on how to avoid being gazundered.
But like the three couples who purportedly started firsthomebuyer.co.uk, some people think anything that pushes down what they see as highly inflated property prices to affordable levels is good. It is not clear whether the website is a spoof, but it certainly pushes gazundering to a new level, with advice on how to do it, who to do it to, to the type of solicitors to use.
Many anti-gazunderers say pitching the property at a realistic price from the start should give the buyer no justification, other than for reasons of greed and mischief, to lower the offer. It also helps to be on pleasant terms with the buyer, one blogger advises. It might help prick the buyer's conscience to see how their action is affecting the vendor.
Industry professionals suggest speeding up transactions to give the buyer less time and opportunity to propose a change of terms. Ensure that buyers have sorted out mortgage arrangements when they make the offer, and organise their valuation and survey soon after the offer has been accepted, experts advise. One piece of advice that is gaining traction is to insist that the buyer pay a deposit and sign a mini-contract that ties him or her into completing the sale at the agreed amount.
"The only way to combat the problem would be a considerable change in the process of buying and selling property in England and Wales, by the introduction of some form of 'conditional contract' that would tie the parties into an agreement. If they then reneged, there would be a financial penalty," says Michael Jones, the president of the National Association of Estate Agents.
Published: December 3, 2010 04:00 AM