House sellers warned how to deal with gazundering

House sellers are being warned to watch out for “gazundering” in the current tough conditions of the residential property market.
Gazundering is where the buyer drops his offer for the property just before contracts are exchanged. It’s the opposite of gazumping, where the seller hikes up the price or accepts a higher offer from another buyer just before contracts are exchanged. Gazundering occurs in a buyer’s market, while gazumping tends to arise when it’s a seller’s market.
Both practices are perfectly legal; there is no binding agreement as to the price or any other term of the bargain until contracts are exchanged – which usually only happens four to six weeks after the prospective buyer’s offer has been accepted and the conveyancing process begins.
“Although it’s legal, these practices are generally a buyer exploiting his bargaining strength in a tough market, and they tend to undermine the smooth running and stability of the conveyancing system,” said John Appleton, residential conveyancing Director and Head of Department with Hertfordshire-based firm Breeze & Wyles Solicitors LLP.
Theoretically it would be possible for the buyer and seller to enter into an agreement to enter into a contract, but in practice buyers are unlikely to enter into such an agreement if sanctions, such as the loss of a substantial pre-contract deposit if the buyer backs out, are included.
Some have called for a French-style conveyancing system, where the buyer and seller enter into a contract at the outset; but opponents say that this sort of system, where a contract is entered into at the outset, is bound to be so full of escape routes that it provides no more certainty than the English system. Even if the buyer decides not to go ahead for a completely frivolous reason they will often be released by the seller because the seller cannot keep the deposit without going to court, and, in the meantime, the house cannot be sold.
John added: “The English system is far from perfect but other systems that might replace it have their own problems and frustrations. My advice to sellers is don’t just accept the highest offer as a matter of course; instead listen to their estate agent’s advice as to whether a prospective buyer appears genuine and is in a position to go ahead.
“In the current buyer’s market, sellers might like to think about instructing their solicitors to state at the outset, when they send out the draft contract and supporting papers, that if the buyer attempts to negotiate a lower price, they will immediately insist on the contract papers being returned, which can act as a psychological deterrent to the buyer.
“They may still get challenged for a price reduction, but it can help to even the balance in current markets.”

 

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