What is gazundering, and how can you deal with it when selling a property?

Victor Garrett takes a look at what gazundering is and five ways in which house sellers can protect themselves against it.

Man on laptop the text “What is gazundering” and The Motley Fool jester cap logo

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

Finalising the sale of a property is gratifying, but the sale process can be challenging at times. Not only do sellers have to ensure the property is in good shape and priced correctly, but they also need to protect themselves against gazundering. What is gazundering? Is it legal? And how do you protect yourself against it?

What is gazundering?

Gazundering is a situation where a buyer lowers their offer at the last minute before exchanging contracts with the seller. This can happen for various reasons:

  • The buyer has gathered information about the property that lowers or will lower its value.
  • Property prices have dropped significantly since the buyer made the first offer.
  • The buyer is in a property chain and had the price of their property reduced, meaning they have no choice but to lower their offer.
  • The buyer is using gazundering as a tactic to save money, confident in the fact that the seller is unlikely to want to cancel the deal at such a late stage.

If you’re the seller, gazundering can place you in a difficult position, especially if you’re in a property chain.

Is gazundering illegal in the UK?

Until contracts have been exchanged, buyers aren’t legally obligated to stick to an offer made. They can back out of a deal or lower a previously offered price without any legal responsibility. It’s therefore up to you, the seller, to protect yourself against gazundering.

How can you prevent gazundering?

Here are five steps you can take to avoid your sale being derailed by gazundering.

1. Be transparent

It’s unwise to hide details about your property. Of course, most buyers will carry out surveys, but these can take time and result in price renegotiation if anything is found. You can bet that survey will uncover what you’re hiding, and it might not end well for you.

You may fall victim to gazundering or tarnish your reputation, meaning you might have difficulty selling your property at all.

2. Set a fair price

Overpricing your property can put you at risk of gazundering. Prudent buyers will perform due diligence before purchase. They will more than likely find out if your property is overpriced and lower their offer. It’s wise to set a fair price to avoid this.

If you’re in a property chain, it helps to work out how low you’re willing to go to avoid compromising your purchase. This allows you to set a price that prepares you if a buyer lowers their offer.

3. Consider a lock-in agreement

A lock-in agreement benefits both sellers and buyers. What happens is that you get into a legally binding contract with a buyer that highlights things that each party shouldn’t do.

In the case of a breach, the breacher pays the other a particular amount, for example, 3% of the property’s value. You could have a clause stating that if the buyer changes their offer, they will pay you 3% of the property’s value.

4. Use agents and conveyancing solicitors

If you’re selling a property for the first time, it might be wise to use property agents and conveyancing solicitors. The main benefit is that they will ensure you’re dealing with serious buyers who are less likely to change their minds at the last minute.

They will also help you identify and avoid buyers in property chains that could lead to affordability issues, which will eventually result in gazundering.

5. Ask for proof of a mortgage in principle

A mortgage in principle shows you that a mortgage lender is willing to lend the buyer the money they’re offering you for the property. This is a good sign, and it means you’re less likely to fall victim to gazundering.