Research suggests that nearly a third of recent sellers have suffered gazundering, which property pundits attribute to a downturn in the market. But, in some areas, the lack of suitable properties means there is still fierce competition for homes, with buyers trying to outbid each other via gazumping.
‘It is certainly a challenging time to be moving home,’ agrees Cathal Murray, solicitor with James McNulty & Co. Solicitors.
‘Unfortunately, some buyers and sellers are taking advantage of the current market to renegotiate the agreed price, threatening to pull out if their demands are not met. The good news is there are things we can do to reduce the risks.’
Gazundering and why it’s a problem
With gazundering, the parties agree on a price and the sale is proceeding, but the buyer then lowers their offer, threatening to pull out if the seller refuses to accept their reduced offer. Gazundering tends to be more common in a falling market, where the gazundering buyer exploits the seller’s fear that they may struggle to achieve the same price again.
Gazundering can happen at any time between accepting an offer and being in contract. However, it is most common just before a formal offer to purchase is made. This is the moment both parties commit legally. As a seller, you will already have made a significant emotional and financial investment in your move and the buyer knows this; it is the point at which their ultimatum is likely to have the most impact. The stakes are high, particularly if you are buying another property with your sale proceeds. If you call your buyer’s bluff and they walk away, you risk losing your new home too, particularly if your seller is in a chain of linked transactions. However, giving in to their demands could cost you dearly too. It can feel like a lose-lose situation.
Gazumping and why it’s a problem
Gazumping is the flip side of gazundering. It is generally more common in a rising market, but can happen whenever there is strong competition over a property. A seller accepts an offer from a buyer and it seems like the purchase is progressing normally. However, the seller then accepts a higher offer from another buyer.
If this happens to you, your seller may invite you to increase your offer. This may secure your purchase, but it could escalate into a bidding war or a contract race. Even if the seller accepts your increased offer, you may find it hard to trust them, fearing they may try the same thing again.
Just like gazundering, gazumping can be costly emotionally and financially. If you decide to pull out, you will lose the benefit of the money you have already spent, for example, on a survey or conveyancing searches. If you are selling your own home and are in a chain, it could also endanger that transaction unless you find a replacement purchase quickly or decide to move out anyway.
Is gazundering or gazumping legal?
Most people consider both practices to be unethical, but neither is unlawful. Either party may change their mind right up until an accepted contract is in place signed and agreed by both parties. It is only then that the transaction becomes legally binding.
How you can reduce the risk of gazundering or gazumping
Until there is a binding contract in place, both buyers and sellers are at risk of the other one changing their mind. So, minimising the time gap between offer and accepted contract will help reduce this risk. Specific action you can take will depend on whether you are buying or selling.
Sellers
If you are a seller, you should address any issue that could delay your sale in advance. For example, your home may have an extension that does not have the requisite planning permission. Applying for retrospective consent before you put the property on the market could prevent this from becoming an issue later. Discuss your plans with your solicitor at an early stage.
It is also a good idea to consider your buyer’s position before accepting their offer. Ask yourself how proceedable they are. Generally, the more complex a chain the more scope there is for problems to arise. However, there is no hard and fast rule; sometimes a first-time buyer who has a mortgage offer in place may be less inclined to risk their purchase than a cash-buyer looking for an easy bargain.
Buyers
If you are a buyer, make your offer conditional on the seller removing their property from the market. Their estate agent has to tell them about any offer they receive. However, if they are no longer actively marketing a property, the chances of receiving a better offer will be a lot lower.
Ensure you can proceed quickly and efficiently. Arrange your finances well in advance and have your solicitor and surveyor lined up. Monitor the progress of your sale. Return any papers your solicitor sends you for completion and respond to their questions promptly. If you show you are a serious proceedable buyer, any seller should think twice about risking their sale. Were possible, develop a rapport with them; they will be less likely to renege on a promise if they like and trust you.
How can I keep my transaction on track?
It may not always be possible to eliminate the risk of gazundering or gazumping, but there is a lot you can do to protect yourself. Either can be down to one party’s greed, but frustration and poor communication can also encourage these practices.
Due diligence at the outset and understanding your buyer or seller and their motivation will help. So too will having the right professionals on board. Our solicitors are proactive and communicate well, giving both parties confidence the transaction will progress as it should. That, and the swift resolution of any legal issues, is often the best safeguard against the perils of gazumping and gazundering.
For further information, please contact us 028 8224 2177 or email reception@jamesmcnulty.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.