House prices are falling at their fastest rate since 1978 - but if you've already put in an offer, what should you do? Here are our five top tips to successful gazundering.
You can almost smell the fear.
The Royal Institution Of Chartered Surveyors has just published its gloomiest view on house prices since the records began in 1978.
In March, 78.5% more surveyors reported a fall rather than a rise in house prices -- a record low.
It is now the eighth month in a row that the Royal Institute of Chartered Surveyors (RICS) house price index has reported a drop in property prices.
The worst falls were in the East Midlands, where 89% more surveyors reported a fall rather than a rise in house prices.
RICS, however, remains relatively upbeat, claiming that while "sentiment is at a very low ebb and will continue to remain depressed", lack of new supply of housing means "a significant crash remains unlikely".
Still, it is a scary time to be a homeowner. But what about if you're a buyer? How can you use the current market to your advantage? And what should you do if you're selling?
The Murky World Of Gazundering
With the pace of house price falls picking up - Halifax reported a 2.5% dip last month, as opposed to a 1% drop over the last quarter - the practice of gazundering is coming back into fashion.
Most of us have heard of gazumping: when you've made an offer on a property, which is accepted by the seller, only to find that the sale falls through because the seller accepts a higher offer from another buyer.
I was gazumped myself and, as I told David Kuo, in our podcast A-Gazumping We Shall Go last year, it was not a pleasant experience.
Gazundering is the exact opposite of gazumping. You put in an offer on a property, which is accepted, only to turn around before contracts are exchanged and lower your offer. The seller then has to decide whether to forgo the sale, potentially losing the chance to buy the property he/she wants, or take the reduction in price on the chin.
You may think such a practice is unethical or even immoral. But in a market where prices are falling rapidly, I think it is understandable -- even though, after my own experience, I feel a lot of sympathy for the homeowner left in the lurch.
The trouble is, the home-buying process often takes months to complete. If prices have fallen 1 or 2% over this period, it makes sense to try to reduce the price you are paying by a similar figure --especially if a similar property down the road has come on the market for less, or someone has tried to gazunder you.
Of course, you may not be successful. And by lowering your offer, you are taking the risk that the sale could fall through -- a sale on which you may have spent thousands of pounds in legal and mortgage fees.
So - faint-hearted homebuyers should look away now - here's a step-by-step guide to successful gazundering:
1. Do your research.
You need to find out how much properties have fallen in price in your area since you made your original offer.
A good place to start is by looking at the PropertySnake website. It will show you properties near your postcode, currently on offer, that have been reduced in price recently. You could also use the Nationwide house price calculator to examine how much a property in your region would have fallen since last quarter, on average, and read up on the latest house price index from Halifax.
And keep checking those estate agents' windows. You never know when a similar property nearby may come up for sale at a lower price.
2. Check your conveyancer's contract carefully
Many firms will not charge you a fee for the work they have done, if the sale breaks down before completion. Considering legal fees can range from £500 to over £1,000, this could be a significant saving if the seller calls your bluff and the deal falls through. So check your contract!
3. Get a Homebuyer's Report
If your surveyor finds something wrong with the property, such as damp or dodgy electrics, find a firm that will give you a free quote for the work. Then cut your offer by the cost of the quote. If you're really cheeky, and it's a substantial problem like subsidence, you could even try to reduce your offer further.
4. Communicate with the estate agent and the seller.
Explain why you are gazundering - for example, because next door's is for sale for £10,000 less, or because your own buyer has gazundered you. (In the boom times, it was quite natural to pass an increase in the price of the top property down the chain, so everyone paid more. Now, you may be able to do the opposite and pass a decrease in the price of your home up the chain instead.)
If the estate agent and seller think you are being reasonable or have justification for reducing the price, then you stand a far greater chance of getting your offer accepted than if they think you are taking the mickey.
5. Be prepared to move quickly
If you can convince the seller that if he/she accepts your offer, you'll exchange contracts on the property immediately without further delay, he/she will be much more likely to accept the price cut and just get it over with. If, on the other hand, the seller suspects you are going to delay and then try to gazunder again, you may just lose out altogether.
Of course, the most honourable practice is to make a fair offer in the first place and then stick to it. I guess it all boils down to what you value more highly: your honour -- or more cash in your pocket.
More: A-Gazumping We Shall Go | Stop Buyers From Gazundering You
>Get a marvellous mortgage deal through The Motley Fool Mortgage Service.
Got your own views on gazundering? Listen to our Money Talk podcast to hear Fool writers Donna Werbner and Laura Starkey debate the topic with David Kuo.
