Is gazundering something to be worried about?
The property market has always been fickle and now, as so often happens, conditions are changing. Competition for homes has been so fierce that the practice of gazumping – when a new buyer comes along at the last minute and makes a higher offer than the one accepted – has been rife.
In fact, a survey conducted by Market Financial Solutions as recently as April 2022 found 47% of homebuyers would consider gazumping a rival bidder if it meant they got the property they want – up 4% from 2019. Fast forward to late August 2022 and the news headline is the reverse – gazundering is on the rise.
Gazundering is the practice of a buyer lowering their offer at the last minute – often dropping the value of their bid just before exchange. The trend has been noted by London law firm Osbornes Law. Its solicitors said ‘price chipping’ in the form of gazundering is increasing, happening in an estimated 50% of property sales.
Many buyers want money off a property purchase as something negative crops up in the survey, such as damp, subsidence or Japanese Knotweed. Other purchasers seek a discount if the property market is falling and the house’s value has dropped between their initial offer and exchange, as paying too much presents the risk that a lender’s surveyor will down-value the property (more on this later).
Both the above are more credible reasons for a buyer to reduce their offer and some estate agents would claim this form of discount is not gazundering at all. Sadly, some purchasers will gazunder as a cheeky way of paying less for a property. By reducing their offer at the last moment, they force the seller to compromise on the price or risk losing the buyer and having to remarket their home from scratch.
While this isn’t such an issue in a seller’s market when there are far more buyers than homes available, Osbornes Law claims we could be switching from a seller’s market to a buyer’s one, making it harder to drum up new interest as we move towards the end of 2022.
It is possible for sellers to minimise the risks of gazundering, which is good practice in any market. Here are some considerations:
Price genuinely
It’s hardly a secret that property values have been rising over the last two years but the buoyancy has left many homeowners thinking their home is worth more than it actually is. The extent of this was revealed by Bankrate in late 2020, when it found 46% of buyers had their prospective property down valued by their mortgage lender.
Down valuing is when a buyer is told by their lender that the home, they want to purchase is not worth the offer they have made. The lender will not loan the full amount required and, in this situation, the buyer may be advised to reduce their offer to match what the lender is prepared to loan. Sellers can avoid down valuing by getting three estate agency valuations, assessing the current sales market and opting for a guide price that is realistic and not over inflated.
Avoid the survey trap
Sellers should minimise opportunities for buyers to use survey results as a reason to lower their offer. This may involve a seller commissioning their own survey to establish what defects may dent the property’s value. If any issues are found, such as damp, subsidence or Japanese Knotweed, it’s wise to rectify them before the property goes on the market. Alternatively, vendors can adjust the guide price to take repairs into account. These actions will give buyers fewer reasons to negotiate the price down.
Think about open market alternatives
While many sellers will naturally ask a High Street estate agent to sell their home on the open market, this leaves the seller at the mercy of a chain and a historically slow conveyancing process. It’s during these vulnerable and protracted stages when a buyer may think about gazundering, so concluding a sale quickly can often reduce the risk.
If you sell a property at auction, exchange happens as soon as the gavel falls and there is no opportunity for the buyer to gazunder. Additionally, the property’s value can be protected by setting a minimum reserve price. Vendors can also explore the option of selling to a professional cash buyer. Although these companies will make an offer under the market value (around 80-85% of), many offer exchange within seven working days so the transaction is swiftly concluded. Be sure to look for cash buyers who are part of The Property Ombudsman and The National Association of Property Buyers.
If you are considering selling one property to buy another and want to make quick, informed decisions to avoid gazundering or any other chain delays, talk to Viewber. We provide property viewing, visit and inspect report services to agents, auctioneers, buyers and investors.
