House prices are falling and gazundering is coming back into fashion. If you're selling your home, how can you ensure you get the price you wanted?
In my last article, Capitalise On House Price Falls, I looked at the murky world of `gazundering': when a buyer reduces his/her original offer before exchange of contracts. The article looked at reasons and circumstances gazundering may occur, and stressed that, to be successful, buyers need to be able to justify their decision.
It proved to be a controversial article, sparking off a passionate debate on the ethics of gazundering -- and, indeed, the morality of the article itself.
Many Fools questioned whether gazundering could ever be justified and criticised the article for "encouraging one of the more unsavoury practices in the housing market".
Others praised the article for "telling it like it is", arguing out that if, during the course of negotiating the purchase of a house, the value of the property dropped and they were forced to stick with the original offer, they would feel ripped off.
So Is Gazundering Ever Ethical?
Well, it's certainly legal -- at least in England and Wales.* Whatever your ethical stance, you're allowed to both gazump and gazunder. It is up to the individual to decide whether their honour is worth more to them than the price they achieve for the property they are buying or selling.
Looking at ethics, I think most of us would agree it is underhanded and dishonest to go into a purchase planning to gazunder the seller once he or she has taken the property off the market and is in a weaker position.
But what about the buyer who finds his chosen property has fallen, perhaps significantly, in value since he made his original offer? Is that buyer as equally morally reprehensible as the buyer that planned to gazunder all along?
After all, since prices dropped by 2.5%, on average last month, this is the reality -- and dilemma -- that many buyers are facing right now.
Is it right that these buyers should pay over the odds for a property that may well fall further in price?
Help For Homeowners
Personally, I could go on debating the ethics of gazundering till the cows come home (and since no cow can claim my home as their own, that may be some time).
If you are a homeowner, however, you may be more interested in what you can do to protect yourself from potential gazunderers -- be they ethical or not. Alternatively, if you are currently in the process of selling your home and have just received a gazundered offer, you may need some advice about what to do next.
So, ethics aside, here's some practical help for sellers.
How To Protect Yourself
- Set a realistic asking price. The less time it takes you to get an offer, the less desperate you will be to sell at any price. Be aware that some buyers will check how long the property has been on the market and whether it has been reduced in price, and will use this information to try to negotiate a further discount.
- Research the market carefully and try to figure out what your property is worth objectively. Look at whether any similar properties are on the market, and how much they are going for. Then factor in what your property is worth to you: i.e. your absolute lowest price. If this is all you can get from a buyer, make it clear from the start that you will not drop the price in the future no matter what happens.
- Be prepared. Make sure your solicitor has all the legal documents the potenital buyer will need before you even get an offer. Dig out any relevant certificates, e.g for damp-proofing or double-glazing. Copy keys for the estate agent and surveyor. Get your HIP sorted. Consider renting if that frees you from a chain.
- Opt for a chain-free buyer if you can. The quicker that buyer can move, the more valuable the offer. A buyer who already has a mortgage offer in place and can move fast may be worth lowering your price for. So ask your estate agent to find out these vital facts before they put an offer to you.
- Be upfront and honest about any defects. If the buyer is aware of problems like subsidence or a short lease from the start, it is far more difficult for them to turn around later and use this as a reason to haggle down the price. Ask the estate agent to ensure the buyer is fully aware that such defects have been factored into the asking price and you would not be prepared to negotiate on these points.
- Remember, you're not safe until you exchange. So incentivise the buyer to speed up the housebuying process. For example, you could accept the offer only on the condition that the buyer gets a survey done within 10 working days, and refuse to stop showing the property until the survey has been completed. Or, if you're particularly ruthless, you could warn the buyer you're going to keep it on the open market until the contracts have been exchanged. That will ensure you haven't lost any time if the buyer does decide to gazunder at a later date.
- Be friendly, but not too friendly. If you can develop some sort of personal relationship with the buyer, it will be harder for them, emotionally, to go back on their word. But don't reveal any facts which might make them think you are desperate to move.
Help For Gazundered Sellers
If you are a seller and a buyer has just tried to gazunder you, there are ways you can fight back. The following fantastic advice was provided by JenniferSEvans,** a conveyancer who commented on the bottom of Capitalise On House Price Falls.
Don't panic, as you may make statements which you do not mean or are incorrect. State that you want evidence of their reasons for reducing the offer (e.g a similar property has fallen in price, or the survey revealed a hidden problem) and wait for them to prove it to you.
In the meantime, do the same research as the buyers. Check prices in the area and ask builders for a free quote, so that you understand your position fully.
Wait until after you have received the buyer's documentation and your own before you decide whether or not to accept the offer. If you can see the buyer's side of the story, try and be reasonable. Maybe you could make a counter-offer which you think is fair. There are two sides to negotiating!
This process should help you to see where the buyer is coming from. If your conclusion is that their expectations are completely unrealistic and unreasonable, consider the chances that the same thing might happen again with another buyer and the costs you would lose on this sale.
Ask yourself: Which is more important to you, the sale or the money? With the facts on your side, you should find you are able to live with whatever decision you make.
* Gazundering cannot take place in Scotland, where the initial offer on the property is legally binding. (There are flaws with this system too, but that's another article.)
** Jennifer's words have been edited.
More: Capitalise On House Price Falls | Why Homebuyers Can Afford To Be Patient
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Got your own views on gazundering? Listen to our Money Talk podcast to hear Fool writers Donna Werbner and Laura Starkey debate the topic with David Kuo.