Home—Blog—The return of 'gazundering' is good for the property market
Oct 18, 2010, 11:06
Posted byMerryn Somerset Webb
Comments (30)
Every October the same thing happens: after their summer holidays, people come home full of optimism and put their houses on the market. And when they do so, says home search agent Henry Pryor, they put them on at prices around 3% higher than they would have at the beginning of the summer, regardless of the state of the market.
And that is exactly what has happened this year. The 105,769 properties, as we now call them, listed on Rightmove.co.uk last month, were priced on average at £7,000 (3.1%) more than those listed a month ago.
This, says Pryor, is clearly "crackers". Supply is rising fast across the market and demand is falling: on current trends a mere 9,000 of the 105,769 properties are likely to find a buyer, "leaving the other 92% wondering what to do next".
The correct answer, of course, is to reduce the price – something 30% of sellers ended up doing over the summer. But those who don't cut their prices might find that someone else does it for them. How? Gazundering.
The general consensus is that gazundering – which is becoming pretty common practice in today's market – is both rude and rather unpleasant. And it is true that it isn't polite, after weeks of planning and admin, to suddenly demand a lower price from a vendor.
But buyers aren't stupid: they know that this is their market and they are clearly going to use their power to get the price of the house they want down to where they consider the correct level to be. That matters, because if you only have one buyer, his idea of where the correct price should be is, in fact, the correct price.
So if a vendor won't cut his price at the start of a deal, should he really be surprised to be asked to cut it at the end? Right now "deluded sellers" are clogging up the housing market. If a spate of gazundering clears them out, is it really such a bad thing?
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(18 October 2010, 12:28PM) Complain about this comment
Is this how you managed to purchase your second home in Scotland a few months ago Merryn?
(18 October 2010, 12:36PM) Complain about this comment
Spot on, Merryn. Whenever gazumping rears its headhe media greet it as good news, a sign of a healthy property market - but when the boot's on the other foot and gazundering appears it's the epitome of evil!The market will only return to health when sellers' expectations come into line with reality - and when that happens vendors will have nothing to fear from gazundering as they'll be able to remarket the property and find another buyer within 6-8 weeks.Remember - in any market, price is the mechanism that equates supply and demand. If houses were correctly priced, supply and demand would always be in equilibrium and there would be no 'buyers' markets' and 'sellers markets'. ..
(18 October 2010, 12:50PM) Complain about this comment
If you make an agreement to purchase something off of somebody, be it verbal or written, unless you have to pull out of the deal for reasons beyond your control, any attempt to drop the price at the last minute displays a total lack of integrity. Decide what you are willing to pay, make the deal and stick to it. Yes the house market in the UK is in a bubble, yes prices need to drop, but that doesn't justify immoral conduct.
(18 October 2010, 12:56PM) Complain about this comment
STR - quite right. The advice in this article is sickening. The people who advocate this kind of behavior are the same as those that wish to see the UK on its knees, women and children homeless and small businesses ruined in the name of buying a cheap house with absolutely no effort.
(18 October 2010, 01:08PM) Complain about this comment
Good report and we've just done that very thing.The house we are in the process of buying was on the market for 395k. We put in an offer of 370k which was accepted over three months ago. The vendors have been dithering throughout the whole process and all this time the value of the house we are supposed to be buying is falling (by 3.6% in September along according to the Halifax).We were thinking about pulling out but instead have given them an ultimatum - reduce the price by approx 5% (to 350k) or we will walk away from the sale.As their house has been on the market for 9 months prior to our first offer they have pretty quickly agreed to the new price and we are now very close to agreeing a move in date.Good result I'd say.
(18 October 2010, 01:21PM) Complain about this comment
I don't really see a moral issue here. I was gazumped when buying a little flat in 2002. I didn't think anything immoral had happened, I just thought, "well, someone gave them an offer I can't match. Too bad." Though I was disappointed by the waste of time, money and effort, I knew, as all vendors and purchasers should know, that nothing is settled till exchange. That's why one should break out the champagne on exchange, not on receiving a non-enforceable verbal offer, or having one accepted.
(18 October 2010, 01:54PM) Complain about this comment
Morally I kind of think that both gazumping and gazundering occupy something of a grey area… an agreement is an agreement but we also have a duty to our own families to get the best deal possible… I think a lot of it boils down to how well you’ve been treated by the other party, in the case of an unreasonably protracted process blighted by excessive posturing/delay/haggling on the other side I would not lose any sleep at all over hitting someone with a gazunder.As to whether gazundering is positively a good thing, I understand MSW’s theory that, at a time of very low transactions, buyers provisionally agreeing to high prices but following up with a gazunder might oil the wheels of the market somewhat by getting buyers and sellers whose expectations would otherwise have been too far apart together, but it’s only a theory really…
(18 October 2010, 02:13PM) Complain about this comment
If it reduces someones mortgage and thus means less interest payments for a bank - I'm all in favour of it.
(18 October 2010, 03:14PM) Complain about this comment
Either activity displays a a complete lack honour. Dictum, meum pactum no longer in vogue in England, maybe the Scottish understanding of Latin is a more practical interpretation as displayed in their system of conveyancing.
(18 October 2010, 04:14PM) Complain about this comment
Get a grip Mick Terry. In a rapidly devalueing market what is more likely to motivate an individuals behaviour? Valour or hanging onto their shirt? Equating the downfall of our society with pricing in market changes demonstrates just how out of touch the property bulls remain.
(18 October 2010, 04:45PM) Complain about this comment
It merely denotes the state of the market and not morality. In the rising property prices Gazumping was the norm and sellers were happily lapping up the increased offer. Tables have turned now. As for legality, so far the law is that Agreement is binding after exchange of contracts and so do the sellers have right to keep property on the market until the contracts are exchanged (and possibly accept a better offer).
(18 October 2010, 07:25PM) Complain about this comment
We have just done this very thing, and I dont regret it at all, even though we lost the house as we could not settle at an agreeble figure. There will be others over the next few months at lower prices I am sure. I would suggest the above people who are talking AT this issue from a moral stance have not been riding the wave of greed that has driven the market up and up over the past years, and caused this bubble no?, really?It is the bubble that is immoral and caused people pain NOT the buyers trying to get into the market without getting themselves in NEQ for years to come.
(18 October 2010, 07:44PM) Complain about this comment
a good article and nothing wrong with the last sentence....a great many people have their heads still in the peak of last year's manufactured bubble. so if a property is sliding massively in price then why shouldn't a purchaser renegoiate? there never seems to be any problem in the trade when everyone's gazumping but when the shoe's on the other foot then how dare we suggest that it's just market forces playing their part. this is so very funny isn't it?a house is truly only worth what someone will pay for it and the confidence has totally eroded again. QE is failing, unemployment set to rise and no doubt a cold winter again with vat up to 20% in the new year....house prices will only go one way now although nobody knows just how big the falls will bemy belief [as a long term investor] is that prices will overshoot the trend on the way down, they always do; with falls from last years high of around 20% quite possibleinvest in property now? speculatively? no, no way
(18 October 2010, 08:16PM) Complain about this comment
If gazundering becomes commonplace sellers will take measures to minimize it. The antidote to gazundering is to ask for a non-returnable deposit from the buyer when the offer is accepted. Often it is 10%, but it can be whatever you like. It can be quite small, eg: equal to the solicitors costs that would be incurred, say £300. The non-returnable deposit system occurs in France and other civilized European countries, and it works both ways... if the buyer pulls out the deposit is lost, and if the seller pulls out he/she has to pay the buyer compensation, equal to the deposit or sometimes twice the deposit. The result is virtually no gazumping and no gazundering. Everyone feels confident that the sale will go through. Definitely a better system than ours. It doesn't necessarily require a change in the law, sellers can insist on a deposit if they feel the buyer is the gazundering type, or the practice is increasing. Even Kirstie Allsopp recommends it.
(18 October 2010, 08:28PM) Complain about this comment
JAWi am afraid that anything sanctioned by kirstie alsopp seems to have the kiss of death attached to it! i thought she just recommended that if people feel they are justified in making a reduced offer of up to 50% less then they have the right to do just thatand also i might add that a nominal £300 will make no difference at all with prices falloing so rapidly. a loss of £300 could effectively easily turn into a profit of £30,000 on the next propertysorry, but this is the market doing what markets should do. people shouldn't meddle, but sadly they already have
(18 October 2010, 08:36PM) Complain about this comment
There is no moral issue here. It`s simply a matter establishing the price through what price discovery mechanism is in place.But for those who do see a moral issue, I suggest the following course of action.Make your offer and if they accept then ask them for a lock out agreement.Hopefully they will refuse the lock out agreement. The only possible reason for this is that they are willing to accept a higher offer from someone else later.Now they have no moral justification to object to a lower offer from you. And you have no moral obligation to stick to your orignal offer.
(18 October 2010, 09:11PM) Complain about this comment
george:Kirstie Allsopp can give me the kiss of death any time she likes. A £300 deposit is not set at a level intended to be a deterrent to gazundering, it is an example of what a seller may require to recover only legal costs incurred from a buyer who breaks their agreement to purchase. A 10% deposit, however, is a considerable deterrent, and a buyer will only pull out for serious reasons.If you advocate free markets why shouldn't people meddle as much as like? Meddling is part of the market, is it not? There probably isn't a single free market anywhere... they are all controlled, regulated, or meddled with, in some way or another. Completely free markets result in monopolies and extortions and sometimes severely impoverished producers. A completely free housing market would imply the right to build a house wherever you like, as once it used to be... and that, more than anything, would send current prices crashing to their correct level.
(18 October 2010, 10:30PM) Complain about this comment
JAWwe must surely be talking about a different alsopp....the one i am thinking of is rather large and unattractive but that isn't the pointwhat she purports IS 'the free market' but only when market conditions suit her own portfolio and her politicswe all know what a true free market is and that isn't the anarchy you try to support your debate with. a free market is a market which reflects truely peoples ability to pay and their confidence in actually paying that. my argument is, if the market had been allowed to find it's true level two years ago we would not be facing a double-dip now. it's happening now and with interest rates at the lowest for 320 years and QE ruining our childrens futures there is nothing left for it. let the prices fall and lets get this thing over with. stop the meddling...
(18 October 2010, 10:43PM) Complain about this comment
JAW, a nice idea but in this current climate no vendor is going to insist on a deposit from a prospective buyer - heavens, it seems hard enough for vendors finding a buyer in the first place without trying to discourage buyers any further with a silly deposit system and an 'you must not agree to ask for a lower price' clause.We got a GAZUNDERING 45k discount from the asking price on our property. Do I feel that was immoral? You bet I don't. Will it give me sleepless nights? I doubt it. If the deal continues to drag it's heels and general property prices continue to fall will we ask for a third discount? Sure thing!Ten years ago the vendors of our house bought it for 215K so it's not like they are loosing out on the deal now is it? It's not like they worked hard either to justify their 135k gain by improving the property significantly.
(19 October 2010, 12:55AM) Complain about this comment
Anyone buying a house at these bubble prices is insane. Housing is still at least 50% overpriced and the crash is yet to come. And come it will, because ultimately house prices must align with people's incomes . That means an average house price whould be about 3 times average family income - say about 80K - which is half of current prices. The pain is yet to come!
(19 October 2010, 01:38AM) Complain about this comment
george/James:Property purchase is a two step process: (1) the verbal expressing of interest to buy (2) the written contract to purchase after due investigation. The pain in the UK system is that most of the investigation occurs after the verbal agreement to purchase at a definite price has been made. The survey, the title and the changing market, may retrospectively affect the appropriateness of the price. In the UK, verbal house purchase agreements have no legal status, and can be abandoned in the face of naked self-interest by either party. This is unsatisfactory and the European system tries to stiffen up step (1) by changing it from a verbal to a preliminary written agreement to purchase, with a deposit forfeiture added to give confidence. Because both the seller and the buyer are liable to forfeit it is a balanced system. Partizans who cheer for either gazumping or gazundering unbalance the system and fatally undermine the verbal agreement basis of all business.
(19 October 2010, 07:16AM) Complain about this comment
JAWmy guess is that if transaction laws were 'stiffened' then much fewer transactions would go through ultimately. we have a 'live' market which actually suits most people most of the timefor many years people have enjoyed the easy gains of a rising market, yet only now when a crash is upon us do sellers question the lawmy annoyance is with our government's reluctance to pump money into industry rather than try to prop the whole economy up with the house market as (seemingly) it's only toolinterest rates should be gently risen in 0.25% increments every three months or boy oh boy are we in for trouble down the line
(19 October 2010, 11:12AM) Complain about this comment
1 & 21;Maybe it is just me, but I always thought that the Scottish Law of Property effectively made it impossible to gazump or gazunder.So quite how MSW could have taken advantage of this on her new home in Scotland, I fail to understand. So comment 1 is irrelevant.And comment 21, well it shows how ignorant people are of the UK legal systems, they are not all lumped together. Need to get out more I think.To get onto the crux of the article though, I suspect that most readers of the site are here to make the most out of their finances. And this clearly show how you can save potentially thousands of pounds yet it is seen as evil and immoral?The housing market has been one of the most immoral areas of business throughout the decades, and if I can - as a prospective buyer - glean back some of the profits made on a house by saving some cash for myself, I don't see that as immoral. It is purely looking after myself and my family.
(19 October 2010, 11:18AM) Complain about this comment
While I don't feel enthusiastic about either gazundering or gazumping, I'd suggest it's simply with a problem of perception. Sellers have been for so long in a position of strength and sale prices appear to be a random collection of numbers thrown out by estate agents. I'm delighted by the underlying message here. The home I've been considering is 50k over what I'm even prepared to consider. I may just be bold and put in an optimistic offer.
(19 October 2010, 11:59AM) Complain about this comment
The point re: tiny gradual interest rate rises is a good one (albeit slightly off topic). I fail to see why small rises would be a bad thing right now; help retired living off interest, help house deposit severs and the big one, encourage those overstretched house owners get their finances in order. As things stand, it is looking likely something (the big unknown, unknown) is going force the BoE to make shock rises at some point in the future, then it's every mortgage holder for himself
(23 October 2010, 11:23AM) Complain about this comment
We're in the process of buying a house at the moment, I don't particularly want to do it now but the timing of our bun in the oven forces the issue and a city centre flat isn't ideal for our situation. I've got to keep the flat due to NEQ so the other half is buying the house, we have a 30% deposit. The house we're interested in is on at £174,950 and I've offered £155,000 which I think is reasonable given the market, our position and land registry information for the area.The vendor "would like something closer to the asking price" - OH REALLY? I'm hoping for another announcement of housing price drops at the end of the month to put some ants in their pants!
(23 October 2010, 12:05PM) Complain about this comment
If you agree a price with a vendor, intending all the while to demand a lower price later, this is deception and I don't see how it can be morally justified. If on the other hand you agree a price and after a survey or a dip of prices in the housing market, you decide the price you offered is no longer right, then gazundering is perfectly in order.
(23 October 2010, 01:52PM) Complain about this comment
With the withdrawal of HIPS properties will come onto the market without proper legal papers. In this downturn there should be a time limit on an offer -then another offer could be introduced. I am too old fashioned to gasunder, having given my word on the price, but if months go by with no answers, or papers, ditch that buy.Having gone through the downturns before, this one has been horribly distorted and it will be interesting to see if that natural dive now commences.
(31 October 2010, 12:31PM) Complain about this comment
I am desperate to buy a house. I am a cash buyer so do not need a mortgage and am currently renting. Any advice as to buy now or wait a few months before buying. For some odd reason the prices in the area I am looking at have just not reflected the national average and even look like they are rising. Poss due to demand and supply and buyers still having cash readily available. Funny old world. Gold or house? Which way pls?
(01 November 2010, 12:40PM) Complain about this comment
Note the first reported year on year fall in house prices since January. According to Hometrack prices were 0.1% lower in October than a year earlier. Hardly statistically significant yet but still not quite what the coalition want to here. With RPI running at 4.9% that equates to a 5% real fall in prices...
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