What is gazundering (and what can you do to avoid it?)
Gazundering is the unethical practice of putting an offer in on a property which is then accepted, to only reduce the offer substantially within a short period before finalisation of the sale. The buyer is hoping that the seller is keen to sell and not wanting to have to put their home on the market again. For example a buyer makes an offer of £200,000 on a house which the vendor accepts, only for the buyer to change their mind and offer £170,000 just before contracts are exchanged. In the current climate, it seems gazundering is on the increase.
There is no reasonable justification for the reduced offer. It isn't the result of a survey finding any defect with the property. This is just a cheap tactic that the potential buyer is using to save money by preying on the vendor's insecurities. Gazundering is more likely to take place when the market is in a downturn, as it is now. With house values falling in many areas, lenders declining mortgage applications and finding that they are unable to obtain the finance to provide mortgages due to the credit crunch, buyers are finding it harder to obtain funds and are looking for bargains, even if they obtain that bargain through unscrupulous means. If a seller refuses to submit to a lower offer, this can bring down an entire chain of sales and leave many people disappointed.
The trick is to anticipate such behaviour and defend against it. First, get your property accurately valued and then set a realistic price. If a property is over-valued, that might well be the catalyst to drive a buyer to gazunder. They will argue that greedy owners in an over-inflated market are receiving their just desserts in the form of this practice, so don't give them the excuse in the first place by offering at a realistic price.
Second, it could be made a condition of the sale that buyers have to pay a deposit and sign a contract that binds them to completing the sale at the agreed price, with the deposit put into a solicitor's account and a deadline then set for exchange of the final contracts. Paying a deposit is quite a common practice in foreign countries and the deposit is forfeit should the buyer pull out without good reason.
Thirdly, try and become friendly with the buyer. If the buyer can relate to the vendor on a personal level, their conscience might dissuade them from attempting to gazunder.
Even if a buyer tries to gazunder, all is not lost. If the vendor refuses the gazunder offer, the buyer might still go ahead with the purchase at the original agreed price. After all, they have paid for a survey, decided that they like the property and might have sold their current home. Failing this, it's always possible to reopen negotiations and try to reach a middle ground rather than accept the gazunder offer outright.