You have accepted an offer on your home, had it surveyed, answered queries from the buyer, put in an offer on your forward purchase, arranged the financing and you are all set to exchange contracts. Then your buyer advises that they are reducing the amount they are willing to pay for your property! It’s a scenario that nightmares are made of and it’s called gazundering. This leaves you, as a seller, in the difficult position of having to decide whether to accept the price reduction or put your home back on the market and risk losing your onward purchase.
Just like gazumping, while gazundering feels like, and often is grossly unfair, it is not illegal in England and Wales. Under the current conveyancing system, there is usually a considerable period of time between accepting an offer and exchanging contracts as surveys, searches, mortgage financing etc all take place. Unfortunately, during this sales progression period and, right up until the day that contracts are actually exchanged, a seller is always at risk of being gazundered.
How you respond to a last-minute reduction in price should be determined by the overall condition of the property market, the reason for the price reduction and your own personal circumstances. It should be remembered that not all gazundering is due to a buyer acting unreasonably and trying to take advantage of a sellers weaker negotiating position. There may be some genuine reasons why the purchase price needs to reconsidered.
Why does gazundering happen?
As the conveyancing process proceeds, buyers learn more about a property through the due diligence process which includes property searches, surveys, raising queries etc. Where a buyer discovers something that genuinely affects the value of the property, then it might be reasonable to seek a price adjustment. For example, if a buyer of a leasehold property discovers that the remaining lease duration is considerably shorter than they were led to believe, then they will justifiably want to reduce the purchase price to reflect the fact that they will have to pay for a lease extension. Similarly, if a survey identifies a number of structural issues at a property that will cost a considerable amount to remediate, then a buyer will normally look for a price reduction to reflect this.
External events and economic shocks can also increase the chance of being gazundered, especially where those events have a sudden and considerable impact on the property market and cause prices to fall quickly. Inevitably under this scenario, purchase prices can be reduced at the last minute to reflect the new market and economic situation.
Another common and understandable reason for gazundering is where there is a problem lower down the chain. Very frequently, as agents we experience the situation where a legitimate price reduction at some point of the chain gets ‘shared’ by all participants in the chain in an attempt to hold the series of transactions together.
While the above represent genuine reasons for an offer to be reduced prior to exchange of contract, unfortunately we also see a number of unscrupulous buyers who, without good reason, wait until the last moment and until they think the seller is in a weak negotiating position before they unreasonably reduce their offer. We discuss how you can help protect against this below.
What can I do to protect against gazundering?
Is there anything that you can do as a seller to protect against gazundering? The answer is yes, there are a few simple tactics that you and your agent can take.
The best way to protect against gazundering is to get a great agent who identifies and weeds out buyers who are just ‘trying their luck’ or appear a bit ‘flaky’. Through the sales progression process, a good agent should also keep track of how committed the buyer is and whether they start making noises about the how much they are paying for the property. There are a number of red flags that an agent should be looking for to ensure their client (the seller) is not put in a difficult position by a receiving last-minute price reduction. It is also good for the agent to have a plan B ready. If you received multiple offers on your home, your agent should be staying in contact with the unsuccessful buyers to keep them ‘warm’ in the background.
Additionally, setting your property’s selling price at the right level reduces the chance of being gazundered. Many agents over inflate property values just to win listings but, in the long term, this is seldomly worth it. You might be lucky enough to achieve an offer over the market value of your home, but if the result is that the buyer eventually thinks they are paying over the odds, they are more likely to experience buyer’s remorse and try to re-negotiate. Again, a good selling agent will be ready for this by helping you set the right selling price and having plenty of market evidence and sales comparisons in support of that price.
You can also minimise the chance of a price reduction by being honest and up-front about the property’s condition during the selling process. There is no point selling a leasehold for full market value if the reality is that there are only 50 years lease term remaining. Similarly, if you know the house has damp issues or subsidence, being honest upfront and reflecting this is in the original listing price is the best way to avoid last minute surprises and disappointment.
Assuming that your buyer is serious about walking away if you don’t agree to reduce the price, you are ultimately going to have to make the tough decision of whether to accept the reduction or re-market your home. When making this decision, as well as your own personal circumstance, current market conditions should be taken into account. In a very slow or buyers’ market, you might think it worth while to stomach the price drop and move forward with the transaction, whereas in a more balanced or a sellers’ market you might decide to chance your luck and put your property back up for sale.