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October 29, 2010
Gazundering and Gazumping
Gazundering, surprisingly, has nothing to do with Dr Seuss books or Russian oil companies. It is the process of demanding a lower price at the last minute, between when a deal has been agreed upon and the exchange of contracts. At this point, though a deal has been agreed in principle, it is not formally agreed upon. Either party then could come back and demand a change in the price (the seller asking for a higher price is called Gazumping).
Of late, Gazundering has returned to popularity in many home purchases. There are many reasons to do this.
- You can get a better price. The seller may reject a lower bid at first, but after he has committed to the idea of selling you the property and stopped showing it to others he may be more willing to compromise. As well, the opportunity cost of restarting viewings, going back to previous interested parties (many of whom would have made offers elsewhere) and renegotiating with a brand new buyer may be worth the lost price.
- The value of properties in the area may have dropped in the interval. Prices in the Royal Borough of Kensington and Chelsea have dropped by 1.5% over the summer months, according to the Land Registry index which records deals done. If it takes a month or more to move from agreeing terms to exchanging contracts then the house may not be worth what it previously was.
- Other information could also come up, such as structural damage, damp, property size discrepancies or anything else which you would only find upon a thorough surveying of the property.
- Finally, you could have made a bad initial offer. If the seller had placed the asking price overly high, you had been nervous about losing the property to another interested party, or you simply hadn’t done your due diligence on the average price in the area.
The question becomes whether or not you should choose to do this. Estate agents far and wide will say no, it is underhanded and immoral. They are understandably biased however. It is perfectly legal. No formal agreement has been made and so neither party is obligated to any agreement, and many sellers are perfectly willing to gazump you or continue showing a property after it has been placed under offer. This though creates a ‘lowest common denominator’ situation in which the most desired circumstance (both sides sticking to the agreed terms) in impossible to reach because neither side is willing to act first.
The way to prevent this is to act in the most professional way you can, and count on the long term benefit of principled negotiating tactics. You may get burned, but on the whole if you stick to principle you will be negotiating on firmer ground than if you resort to Machiavellian tactics. Don’t be naive but don’t stoop to their level as well. If both resort to underhanded tactics, you run a much higher risk of deals falling apart or swinging too far against you. My advice would be to reduce your risk on the whole and keep a strong, principled negotiating tactic, counting on a fair price being more effective than shrewd tactics.