Gazundering
Many people are very aware
of the term gazumping
– where a seller accepts
one offer and then, before
contracts are exchanged,
accepts a higher offer
leaving the original buyer
high and dry or being
pushed into offering more
money for the property.
But how many people know
about gazundering?
Gazundering is when a price is initially
agreed for a property and the transaction
will progress along in the normal way
and then at the 11th hour the buyers will
announce that they are reducing their
offer for the property.
This usually happens when house prices
start falling (and at a time when we
are fast approaching what could be an
uncertain few months for the economy
with the General Election looming)
property prices could start to fall and a
buyer may feel that they are suddenly
paying too much for the property
As with everything there are two sides
to the situation and depending on which
side you are on will depend on whether it
is a good or bad thing.
Obviously if you are the buyer then your
advantages will be that you will pay less
for the property, less stamp duty and, in
some cases, lower registration fees.
However there is a downside for a buyer
– if a price change occurs at any point
prior to exchange of contracts, and the
buyer is getting mortgage finance for the
purchase, then the lender will need to be
made aware of the change of price and
the matter may have to be reconsidered
by the valuer and/or the underwriting
team for the lender. This will invariably
cause delays in being able to move to
exchange of contracts and may even
incur additional fees (for the lender and
the additional work incurred by legal
advisors in dealing with the price change
on the various documents).
For the seller there are few, if any
advantages. At the point that
gazundering takes place they are usually
packed up ready to move and have
certainly made plans for after the sale
either with a new property to purchase
or with money in the bank for the net
proceeds of sale. Either way if a buyer
is successful then this will reduce the
amount of money that the seller has
available following completion.
That said it does not have to be all doom
and gloom for a seller, Just because
a buyer attempts to reduce the asking
price does not mean that you have to
agree to it. The property transaction is not
legally binding until contracts are formally
exchanged and any negotiations on
price have to be agreed by both parties
for them to be successful. However the
decision does have to be made by the
seller as to how much they really want
to sell and whether the price reduction
makes their future plans viable.
The practice of gazundering, which
although many consider to be immoral,
is not illegal, and although this has been
relatively dormant for some years now, it
could be back with us for the time being.
By Helen Fish
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