When might you be gazundered?
Gazundering is the name given to the act of the buyer of a property reducing the offer price at the last minute – after the original offer has been accepted and just before contracts are about to be exchanged.
If you’re the seller and the buyer gazunders you, you have to choose between two difficult options: accept the reduced offer, or refuse it.
If you refuse it, you may not have another offer to fall back on, and you might find yourself back at square one of advertising the property afresh.
This is particularly risky if you are part of a property chain because if the sale does not follow through then the entire chain will collapse.
Accepting a lower offer price may mean that your next move isn't as you plan - for example, you may not be able to afford rennovations straight away. You may even have to gazunder your seller.
Why does gazundering happen?
An over-extended buyer
Buying a home, and in particular, committing to such a large price, is a daunting decision. For many people, it involves spending significant savings.
It is not uncommon for a buyer to fall in love with a property, convince himself, herself or his or her partner that it can be afforded, and then later, just before exchanging contracts, to doubt whether paying such a price is sensible.
So the buyers decide to reduce the purchase offer, perhaps to reduce the mortgage payments or to keep some savings, hoping that it will still be accepted.
An unexpected survey
The purpose of the survey is to tell the buyer about the condition of the property so that he or she can give a fair offer based on the seller’s expectations of the property’s value adjusted for the price of repairs or significant work.
It may take time between the survey being completed (and an offer subsequently being made) and the buyer to obtain quotes for work.
A keen buyer might put in an offer before he or she understands the extent of the work necessary in order to beat other potential buyers, but then expect to be able to negotiate to some extent afterwards.
The buyer sees another property
Many buyers continue to look at other properties even after the seller has accepted their offer. There is the feeling that the deal isn’t done until the contracts are exchanged. If a buyer does find another property, it may adjust his or her view of what a fair price for your property is, and he or she may gazunder you. He or she may still prefer yours. It may just be that his or her perception of the fair price changes.
Collapse of the property chain
If the buyer is in a chain, and the chain collapses, the buyer may be gazundered himself or herself. He or she may then not be able to afford your property without passing on some of the loss to you.
The buyer’s mortgage offer expires
It is rare for a mortgage offer to expire. But if there are substantial delays in the conveyancing process, it is possible that the buyer’s mortgage provider refuses to extend the offer period, leaving the buyer with only more expensive offers. The buyer may then not be able to afford your property at the original offer price.
Is it fair for the buyer to gazunder the seller?
Most people would agree that it is unfair to the seller to be gazundered because accepting an offer has costs: the property is taken off the market and conveyancing starts.
A buyer knows this and may gazunder you in order to benefit from your weaker position. He or she may know that you have little option but to accept a lower price.
However, in some circumstances, especially where new information comes to light about the condition of the property, the advantage to the buyer might be enough to balance out the disadvantage to the seller.
How do you prevent being gazundered?
In order to protect yourself from being gazundered you need to make sure that you are realistic about your asking price. You should also try to be as honest about the issues with the property as early on as possible so that no information in the survey causes the buyer to rethink their decision.
While it is not fair to a seller, it is a risk when selling. Fortunately, it happens relatively infrequently, so if you act in good faith, it is likely that you will be repaid for it.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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