"Gazundering returns as house prices fall
Whether you believe the Halifax claim that house prices fell by a record amount last month or the Royal Institution of Chartered Surveyors’ report of more modest declines this week, there is one sure sign that homebuyers are regaining the upper hand in a weakening property market; gazundering is back.
It’s an ugly word for an unpleasant experience every homeseller dreads. After buyer and seller have agreed a price but at the last moment before contracts are due to be exchanged, the buyer demands a substantially lower price. Vendors then have to chose between writing off weeks or months of planning and accepting substantially less than they originally agreed. In many cases, the delay and disruption generated by gazundering can be felt right up the chain of connected sales and purchases.
Andrew Montlake of mortgage broker Coreco said: “It’s a sign of the times. We are certainly seeing more buyers chancing their arm and trying to get vendors to knock something off the agreed price.”
This is the opposite side of the coin from gazumping, where some vendors suddenly demanded higher prices when house prices were rising. There are many reasons the exchange and completion price may differ from the original price agreed, including mortgage lenders’ valuations becoming increasingly cautious and the changing interaction between supply and demand as prices drift lower.
Tempted by the chance to save thousands of pounds which might take years to save out of taxed income, some buyers are pressing for discounts by fair means or foul. David Hollingworth of London & Country Mortgages noted: “In the current market, there is certainly a greater chance of gazundering rearing its ugly head.
“Buyers look to capitalise on their advantageous position and drop their offer in the hope that the vendor will cave in for fear of not finding another buyer. This is often seen as an underhand approach to reduce the purchase price but until contracts have been exchanged anything is possible.”
What can vendors do to protect their position? Melanie Bien, director of mortgage broker Private Finance, said: “Speed is important; the quicker the transaction progresses to exchange of contracts the better, as it gives buyers less opportunity to pull out or try to change the terms. So make sure you return documents and forms to your solicitor promptly.
“Keep in touch with the estate agent and your solicitor to ensure that everything is moving smoothly. You should keep informed of the buyer’s intentions all the way through the process. If they start dragging their heels, find out why.
“Get the buyer to prove their commitment as early on as possible, so insist that the valuation and survey is done within days of accepting their offer. Once the buyer has invested some money, they are less likely to pull out because they will lose this if they fail to complete the purchase.”
Where you are confident that you have agreed a realistic price which reflects supply and demand in your area, then you may feel able to go one step further to deter a buyer from attempting to renege on the price agreed. Andrew Ellinas, a director of Sandfords property consultants, said: “To prevent gazundering once a sale reaches the crucial stages, I would suggest asking for a non-refundable deposit which will deter buyers from forcing down the price later on. There is always room for negotiation on fixtures, fittings and white goods which can be used as bargaining tools in any counter-offer.”
Finally, do remember that if you are forced to accept less than you expected on the property you sell, you could still end up better-off if you are trading up to a more expensive home and you manage to obtain the same percentage discount on the property you buy. For example, 5 per cent off £200,000 is worth £2,500 more than 5 per cent off £150,000. What goes around comes around.
Source: Gazundering returns as house prices fall – Telegraph Blogs
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AtW's comment: it cracks me up how buyers can pull out after having contract signed without massive penalty.
Whether you believe the Halifax claim that house prices fell by a record amount last month or the Royal Institution of Chartered Surveyors’ report of more modest declines this week, there is one sure sign that homebuyers are regaining the upper hand in a weakening property market; gazundering is back.
It’s an ugly word for an unpleasant experience every homeseller dreads. After buyer and seller have agreed a price but at the last moment before contracts are due to be exchanged, the buyer demands a substantially lower price. Vendors then have to chose between writing off weeks or months of planning and accepting substantially less than they originally agreed. In many cases, the delay and disruption generated by gazundering can be felt right up the chain of connected sales and purchases.
Andrew Montlake of mortgage broker Coreco said: “It’s a sign of the times. We are certainly seeing more buyers chancing their arm and trying to get vendors to knock something off the agreed price.”
This is the opposite side of the coin from gazumping, where some vendors suddenly demanded higher prices when house prices were rising. There are many reasons the exchange and completion price may differ from the original price agreed, including mortgage lenders’ valuations becoming increasingly cautious and the changing interaction between supply and demand as prices drift lower.
Tempted by the chance to save thousands of pounds which might take years to save out of taxed income, some buyers are pressing for discounts by fair means or foul. David Hollingworth of London & Country Mortgages noted: “In the current market, there is certainly a greater chance of gazundering rearing its ugly head.
“Buyers look to capitalise on their advantageous position and drop their offer in the hope that the vendor will cave in for fear of not finding another buyer. This is often seen as an underhand approach to reduce the purchase price but until contracts have been exchanged anything is possible.”
What can vendors do to protect their position? Melanie Bien, director of mortgage broker Private Finance, said: “Speed is important; the quicker the transaction progresses to exchange of contracts the better, as it gives buyers less opportunity to pull out or try to change the terms. So make sure you return documents and forms to your solicitor promptly.
“Keep in touch with the estate agent and your solicitor to ensure that everything is moving smoothly. You should keep informed of the buyer’s intentions all the way through the process. If they start dragging their heels, find out why.
“Get the buyer to prove their commitment as early on as possible, so insist that the valuation and survey is done within days of accepting their offer. Once the buyer has invested some money, they are less likely to pull out because they will lose this if they fail to complete the purchase.”
Where you are confident that you have agreed a realistic price which reflects supply and demand in your area, then you may feel able to go one step further to deter a buyer from attempting to renege on the price agreed. Andrew Ellinas, a director of Sandfords property consultants, said: “To prevent gazundering once a sale reaches the crucial stages, I would suggest asking for a non-refundable deposit which will deter buyers from forcing down the price later on. There is always room for negotiation on fixtures, fittings and white goods which can be used as bargaining tools in any counter-offer.”
Finally, do remember that if you are forced to accept less than you expected on the property you sell, you could still end up better-off if you are trading up to a more expensive home and you manage to obtain the same percentage discount on the property you buy. For example, 5 per cent off £200,000 is worth £2,500 more than 5 per cent off £150,000. What goes around comes around.
Source: Gazundering returns as house prices fall – Telegraph Blogs
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AtW's comment: it cracks me up how buyers can pull out after having contract signed without massive penalty.
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