Our news about the re-emergence of “gazundering “in the UK property market, seems to have got pulses racing, particularly over at housepricecrash.co.uk, so I’ve been wondering if it is as unethical and bad a practice as it first seems.
For those who don’t know what gazundering means, it’s when a house buyer suddenly reduces his offer, during the process of buying a property, even though he/she had previously agreed a higher price with the seller. You only see this happening in a falling property market, which is of course what we have in the UK at the moment.
To go back against your word is, of course, never a good thing and could be thought unethical, however buying and selling anything, which includes houses, is first and foremost a business transaction. In business, deals are often broken because of changes to market conditions, so it is natural that this feeds through to property deals too.
Is re-negotiating a new price for a house because it’s value has fallen, better than pulling out of the deal altogether? I have spoken to several estate agents recently who have said that holding chains together long enough to get to exchange of contracts, is a huge challenge at the moment.
As house prices fall, all it takes is one person in the chain to be tempted by a cheaper, better value property, and the whole chain collapses. It’s inevitable that everybody in that chain has invested money in the chain – with surveyor and legal fees, for example – so the collapse of the chain causes many people to lose money, time and lost opportunity if it can’t be rebuilt quickly.
So if one of the buyers attempts to re-align his house purchase to the new market price without pulling out of the deal, this seems to be OK as long as the estate agents then work together to transmit that revised pricing to all the deals in the chain.
The trouble is, that sounds great in theory, but will almost never work in a long chain. This is because the revised lower value on one or more of the properties in the chain will suddenly fall below a loan to value threshold for a mortgage. The chain would then collapse because of mortgage difficulties, which is happening a lot at the moment too.
So is gazundering as bad as it seems? Probably not, but it does show how difficult the property market is at the moment.