In his Review of Residential Property Sir Bryan Carsberg referred
to research commissioned by RICS during the Spring of 2008 (the ComRes survey).
“One of that survey’s findings, he said,
“was that many people claim to know
someone who has been inconstant
in the process of buying or selling,
perhaps sellers switching buyers at
the last moment to get a higher price
(gazumping) or buyers threatening
not to go ahead with transactions
in order to get the seller to agree
to a lower price (gazundering).
Many fewer admit to carrying out
such practices themselves, though
the numbers of those who do are
nonetheless significant.”
We are fairly unlikely to see much
evidence of gazumping in the current
market but gazundering is, sadly,
likely to raise its ugly head more
frequently. Both activities are equally
frustrating, upsetting and occasionally
disastrous for sellers, as described by
NAEA member David Mortimer who
was telling ‘Gavel’ magazine about
his reasons for becoming a qualified
auctioneer:
“The main turning point came as I was
selling one acre of development land
for a client with terminal cancer. He
had about a year to live and wanted
to move with his wife closer to their
daughter in Coventry. We did the
deal at more than £800,000 - only
to be offered £650,000 on the day
of exchange of contracts. I felt that I
had let down my client, and from that
point moved towards auctioneering
as the only serious alternative to
informal tenders, thus protecting the
client from being gazundered.
I am now a firm believer that by selling
properties at auction you are doing
so in an open and fair environment
where you can demonstrate that you
are achieving the best price for your
clients,“ he said.
Six months ago, an equally concerned
Richard Hair, NAEA Branch Chairman
for Essex, said: “We seem to be
caught between and rock and two
hard places. Instructions are very
slow, sales remain difficult to put
together with buyers reluctant to
commit and we now have the first
signs of gazundering.”
Unethical, but legal
This practice is unethical, but legal. It
can help buyers to secure a home that
they really cannot afford and some
websites actually promote the practice,
telling their readers that it’s ‘fair
enough’. It may be fair enough as far
as the buyer is concerned but to a seller
in the middle of, perhaps, the second or
third chain they have become involved
in, it can be the last straw.
Sir Bryan Carsberg reported that he
believed that the taking of deposits
when a buyer agrees to proceed
might help; this is a practice regularly
used by NAEA members Green and
Co. in London who have introduced
a ‘Goodwill Charter’ to help to avoid
gazumping and gazundering.
The Goodwill Charter is a legal
document, devised with their solicitors,
which helps to stop vendors and
purchasers from entering into sales
they have no intention of honouring.
If either party withdraws from the sale
without a genuine reason, within the
agreed time period (normally 14 or
21 days from the date the vendor’s
solicitors provide a complete package
of information), they forfeit the bond
they have paid. (An amount agreed
between seller and buyer, usually
around £500 - £1000)
Greene & Co say that they hope this
type of agreement will eventually
become compulsory when buying a
property as it seems to be the only way
to prevent gazumping or gazundering.
The agreement can be made subject
to a purchaser’s mortgage offer,
survey etc, but if either party breaks
the agreement for no good reason the
money that the agent has been holding
will be directly paid to the other party.
If both parties keep to the agreement
for the agreed time period regardless
whether an exchange of contracts has
occurred the money will be returned
immediately.
This is a great idea if your clients will
play ball; but what else can be done
to avoid your sales being wrecked
by gazunderers? Rachael Harrison,
(pictured above) sales manager of Robinson and Hall, has some ideas.
“Less savoury property buyers are
leaving sellers high and dry by
demanding a last minute price cut,
which can sometimes occur on the day
of exchange. Gazundering buyers break
sales chains as sellers are frequently no
longer able to afford their intended next
purchase if they accept a lower offer.
The current economic climate has
increased the length of purchasing
processes far beyond the previous
average of eight weeks. Sellers can
reduce the threat of being gazundered
by taking every possible step to speed
the process through to exchanging
contracts,” she explained.
Rachael recommends that sellers instruct
their solicitors the moment the marketing
of their property begins. Ensure that they
have the title deeds which are available
on request from the mortgage lender.
Avoid unnecessary delays by filling
in the forms from the solicitor early
so that they are ready for when a
buyer’s solicitor needs to see them.
Ask the solicitor whether a full local
authority search is included in the
Home Information Pack (HIP). Many
HIPs exclude this information which
can cause the buyer’s solicitor to
undertake a new search which could
delay completion. Also, prepare
copies of planning permission and
building regulation consents ahead
of time.
If selling a leasehold property, the
seller should make sure that they have
received all the service charge and
insurance details from the managing
agents. This can take a long time, so
requesting the information early can
reduce the risk of a delayed exchange.
Genuine buyers are attracted to
realistic guide prices; it is important
that the agent discusses all offers with
their client to help identify low-risk
prospects. If an offer seems too good
to be true compared to current market
prices, sellers should be prepared to
be gazundered. The buyer might be
trying to lock out other offers and
drop the price minutes before the
exchange of contracts.
If you doubt a buyer’s ability to
promptly raise finance, continue to
market the property until the buyer
is in receipt of a mortgage offer.
Raising finance is the largest obstacle
in today’s climate. Help the seller
devise a plan of action. What would
they do if their buyer reduced their
offer late in the sales process?
Finally, advise the seller to consider
selling at auction. It offers the security
of a pre-agreed completion date and
a binding contract on the fall of the
gavel.
Gazundering returns. Here is some advice on how to avoid it happening.
