What do a £700,000 flat in Mayfair, a £3m townhouse in Notting Hill and a similarly priced house in the country have in common? All are prime properties that have seen more than 10% price growth this year, but whose owners have recently fallen victim to the rather nasty practice of gazundering.
Most homebuyers are familiar with gazumping, a typical feature of rising markets, in which someone has an offer on a property accepted, only to find themselves beaten at the last moment by a rival bidder. As conditions cool, however, gazumping’s equally ugly cousin is starting to put in an appearance.
Last seen during the recession of the early 1990s, gazundering – or “bid and chip”, as it has been rebranded for the Noughties – occurs when a buyer successfully bids for a house, then, just as contracts are about to be exchanged, ruthlessly chips away at the offer, forcing vendors to accept a lower price or lose out on the sale. Its reemergence is being seen by agents and property experts as yet another sign that the market is weakening.
The recent turbulence in financial markets, and the credit crunch it has caused, is having an effect. A report to be published tomorrow by Rightmove, the property website that tracks asking prices in England and Wales, shows that house prices have been flat for the past six months. Although prices in the four weeks to mid-October rose by 2.7%, this followed a 2.6% fall in the previous period. For the first time in 18 months, it seems, buyers are in a position to haggle. Even in the capital’s leafier streets and larger houses, a few cracks are appearing.
“Up until six weeks ago, there was no stopping it – almost all sales were in excess of the asking price,” says Peter Rollings, managing director of Marsh & Parsons, a chain of estate agents based in west London. “If you didn’t pay, you didn’t get it. Buyers would bid over the guide price even if the house had some blemishes, such as damp or road noise, confident that the market would keep rising. Now, people are less likely to take that view. Sentiment is different.”
He cites the example of a “very nice” house in Notting Hill he has been handling. When the property came on to the market in June, the buyer had to bid “substantially over” the £3m guide price to secure it. But the mood had changed sharply by the end of last month, when the time came to exchange. The day before, the bidder knocked more than £100,000 off his offer. After some serious negotiation, a deal was struck – but at 3% below the previously agreed price. “It is a market-driven phenomenon,” Rollings says. “It is the first example I’ve seen, but I’m expecting a lot more of it.”
Figures from the national estate agency Knight Frank show a growing mismatch between asking prices and actual achieved prices, especially in London. In June, for example, properties changed hands at an average 5% above the asking price – now they are going for 3% below, the lowest ratio for 18 months.
What looks like only a small difference is highly significant. “It doesn’t take much either way to show a strong market or a weakening one,” says Liam Bailey, head of residential research at Knight Frank. “The ground rules have drifted a lot since the summer. Six months ago, you could have been bullish, but do that now and you risk your property hanging around on the market. The market is sticky. People think that prices go up over time, but they aren’t going up. They are staying flat. It will take until the new year for asking prices and achieved prices to get back in line.”
Until this happens, sellers have to be more realistic about what they can ask, and accept that buyers will have room to renegotiate. And this means more last-minute gazundering, especially since, as has increasingly been the case in recent weeks, the valuations put by mortgage lenders on properties have been more conservative than in the boom days of last spring.
“A two-tier market is emerging,” says Jasper Fielding, a partner at Strutt & Parker’s office in Moreton-in-Marsh, in the Cotswolds. “There are those properties that are selling and those that aren’t. It is happening across all price brackets. There is much more price sensitivity this autumn.
“The element of competition that was so strong in the spring just isn’t there any more. Instead of half a dozen buyers chasing a house, today there are only one or two. Money has become more cautious.”
Not that gazundering always works, says Chris Brown, a Derby-based estate agent and vice president of the National Association of Estate Agents. “Buyers must also be aware that if they start to play games at the last minute, this could backfire. I have known a number of sellers who have taken a dim view of this and withdrawn on principle.”
His advice to sellers? Hold your nerve. “You have to ask yourself if it is a bona-fide offer,” Brown explains. “If you think it is legitimate, for example, and the survey shows damp rot, then you should consider it. You can negotiate around it.
“It is different if you think it is simply a matter of sport to save money. Then you should be more wary. Can you trust the buyer? Will they do the same thing again? If you think you can find another buyer for the same price, you can put your house back on the market.”
Which is exactly what the owners of Ebrington Hill, a five-bedroom house with just under 17 acres near Chipping Campden, did when their buyer tried to reduce his offer by 10% just days before they were due to exchange. The 19th-century house in Gloucestershire was put up for sale for £3.2m in June, when the market for prime country houses was booming. The sellers, who have declined to be named, had accepted an offer closer to £3.5m. They decided that they weren’t going to be forced to accept a lower bid, and put the house back on the market a fortnight ago for its original £3.2m asking price.
Peter Wetherell, director of Wetherell, a Mayfair estate agency, encountered a similar situation recently with the sale of a £700,000 Mayfair flat. “When one of our buyers tried to chip the price down, we just phoned the second in line,” he says. “That time, the buyer had to pay the penalty and lost out.
“We’ve had quite a few incidents of gazundering in the past six weeks, all wanting to chip about 5% off the asking price. If it becomes endemic, it is a sure sign that the market is going down, but right now it is just a pause for reflection.”
look people! I am selling my home of twenty years. I dont want to make a fortune in profit. I just wish to AFFORD the new home that is bigger because my children are BIGGER. The one bought because we were told our old house would cover the cost.
Most people who are selling are not the enemy. The enemy is the system which encourages cloak and dagger dealing within the buying and selling market.
My house is on sale for the price that some 'expert' agent told me I must put it on for. What chance have any of us if we have to use a system and trust a system that leads us all 'up the garden path'. I would rather a survey told us what a house is worth then the deal is struck with the first person past the door with the cheque.
Through a lawyer. Retaining the right to refuse sale but no right to charge more than the survey says it is worth.
Banks and mortgage lenders can do this survey legally. Perhaps the cost of the survey going to the eventual owner.
WHY NOT??? Is greed really worth it.
joan Douglas, glasgow , scotland
When the negotiations start - make it clear you (the seller) are going to give first refusal to anyone who is prepared to buy an option to exchange contracts within four weeks. The money's lost if the buyer doesn't go ahead, but the buyer can extend the time for a further payment. If you the seller back out, you refund the buyer double his option price. The draft sale contract can be included with the HIP. Not usual but there's no reason why it shouldn't work. Care is needed in preparing both the option and the contract. Meanwhile you are happy to deal with other buyers on the usual 'subject to contract' terms - provided that they know the risk of being scooped by someone prepared to pay for an option.
Dave, Cambridge,
Ruthless buyers? that's rich.
Sellers have had the upper hand for years, and starting a few weeks ago, the market turned down dramatically.
So now we have a change in sentiment, and property sellers are squealing like pigs. There's alot more to come on the downside, and the sellers will be lucky to exit at all. Theyshould count theirblessigs.
DrBubb, London and Hong Kong, England & China
Niko, London & Ben Folksone,
I find it amusing now that there is mention of bonds in relation to securing a sale. Let's face it, it is more in the sellers interest to have a cast iron agreement between buyer and seller... when the market is falling.
Were you in favour of such agreements say a year or two ago when house prices were rising ? I think not.
And now is the whining coming from the sellers i.e. the dispicable actions of buyers guzundering ?
Steve, Newcastle,
Tom, Frome
Renting is not "dead money" when the housing market is as over valued as it is now. On purchasing a property you are merely renting from the bank until such time as you have paid back the principal sum plus substantial interest. Many people in this country have little or no understanding of markets and economics. Yet, they still make the financial decision that purchasing a BTL property with a negative rental yield or a first property with a 100% LTV on 6 times earnings is a good investment. Now there is negative sentiment we will see a massive adjustment and many people in the UK will be bankrupted. It is not different this time. The US is having prices falling nationwide for the first time in a generation. This on the back of low interest rates, low inflation and low unemloyment. The issue of supply is a mute point. There are over 870,000 empty properties in the UK. The vested interests have run out of spin and Brown knows the UK service based economy is on the edge.
Ed, London,
The rich get ricer and the poor suffer, well first time buyers suffer (Me Included) for our sakes we just hope the market crashes (wishfull thinking).
Goverment should do more to fix and monitor rental prices, renting is dead money and very few have the funds to save for a mortage.
Also introduce High Taxes for second homes, 20% tax on a second house a purchase value. (I'll change my opion on this when I do manage to get on the property ladder).
Tom, Frome, Somerset
Well, Niko, greed and fear are frequently cited as drivers of the markets, equities and (at certain times) houses too. That is why both can become hugely overvalued and undervalued.
The need for comfort and security is indeed human nature; so, in too many people, is selfish greed and the desire for wealth without doing too much work.
David, Guildford,
I think Nico in London has the right idea, talk with the buyer, agree to mutually bind to the agreement, get the haggling out of the way. and everyone is relatively happy. Otherwise Sellers : deal with it. if you don't like it don't sell. the market has been filled with dodgy practice for so long that it is a total mess. you will have benifited, if you are actually useing the house as somewhere to live , then wiat it out! If its an investment then tough, all investments are a gamble, thats how they work.
Ben, folkestone, uk
I have sympathy for a young couple that may have stretched themselves enormously or been the victims of irresponsible lenders and now may face losing their house.
I take exception to the idea that large swathes of young people, or the merely averagely paid, that are still priced out due to the activities of BTLers who have speculated on property, making it unaffordable, are to be described as "bitter whingers".
Yes, the boot is now on the other foot and I think buyers are about to put you to the sword.
Dermot, London,
Oh bo hoo, buyers have been dumped on for the last decade, get over it, theses people probably did not mind playing the market for all it was worth on the way up, well Guys!! the tables have now turned, and the markets saying knock that extra 10% off if you want a sale.
And for the record i have been a buyer and and a seller a few times over the last 10 years, i have just had a stomach full of the greed and nastiness that has gone hand in hand with house price inflation.
Charlie, saffron walden,
I'm selling at the moment, and I've been thinking about agreeing a bond (valid til point of exchange) with a prospective buyer. That would offer some consolation for either party, should either party renege on the deal before it goes through.
I'm tired of hearing bitter whingers complain that 'greed' has driven house-prices up. The market drives prices up (and down). I don't hear you complaining that 'greed' has driven share prices up, because that is a load of nonsense too. If you had been able, or smart-enough, to buy 10 years ago, I doubt you'd be whining now.
Everyone wants a bit of comfort and security, it's human nature.
niko, london,
I wonder if we could re-visit the couple in chipping campden in 3 months.
What price then- up or down
neil, coutances, france
Oh and by the way Prime Minister (Crash Gordon) Brown, Unelect, will try to keep the whole pack of cards / plates spinning , at least until April next year when he may try to scuttle for the polls in a deperate window of opportunity. He simply cannot afford houses to fall in value, even if it means spending good public money that could have been spent on your hospitals schools, roads etc.. etc.. in the process.
Pete Balchin, Solicitor , Bristol, UK
So if Jeremy Taylor of Crawly accepted an offer on his house, he wouldn't then accept at a later date a higher offer which I believe is known as 'gazumping'. No sympathy for the buyer in that case ?
I think you have to accept the boot is on the other foot now.
It is a buyers market.
Roger Harrow, Jedburgh,
We had gazumping as house prices increased and a lot of anguish for buyers. Now as Jeremy illustrates the tables have tutrned. The whole idea of home information packs with surveys was supposed to reduce the scope for gazumping and gazundering. However the housing inductry have emasculated these packs.
Lesley, Cambridge, UK
Jeremy,
Welcome to the real world where house prices are about 65% overvalued (evening standard).
Expect the problem to get worse for you. I recall in the early 1990's clients of mine tendering for 3 or 4 properties they knew they could bring down in price by playing sellers off against each other.
Its now very much a buyers market. Well, dependent on what mortgage they can raise and whether they (or anyone) has saved anything in the last 10 years debt fest.
Pete Balchin, Solicitor , Bristol, UK
I find the current system astonishing as we have had two sales fall through due to buyers poor behaviour. As a result we have incurred expense & anguish, as have others in the chain. The law needs to be changed so that, once an offer is made & agreed through survey, that offer is legally binding on the buyer & the seller.
Jeremy Taylor, Crawley,
To Mr Jeremy Taylor, Crawley
While I like your idea of an offer that is legally binding, the last 10 years has been far, far hard on buyers being gazumped by greedy vendors. The current system is extremely unfair but remains strongly biased in favour of the vendor. Market conditions are at last changing to address the balance. Having lost 5 homes to gazumping in the past 3 years, I remain in rented accommodation, because I am now priced out of the market in the commutable area to where I work. Life is far harder when you don't own a home.
Sure as eggs is eggs, I'll be gazundering! But even if I'm lucky, it will hardly dent the enormous profit margin that the current home owners have made.
NickT, Aldershot,
The market movement upward has been a function of speculative greed made possible by cheap money. The movement down will be a function of panic and dire financial distress. These movements give the seller and the buyer excessive market power respectively.
It's best to acknowledge these facts and play the game accordingly. Since buyers have the power now, sellers need to start accepting offers that, come the time of exchanging, will still be acceptable to both parties.
Adam Taylor, London,
Welcome the ruthless Buyers & Shame on English property owners / speculators who believe that they have a godd given right to an annual >10% growth in their property values.
If they were to accept the blame for Britain's uncompetitve economic plight their greed might be more accepatable.
Greed rules in Britain.
I now live in a country where 100% increase in property values is not uncommon....
Richard, Bucharest, Romania
Surely this is just a reflection of a free market? Sellers don't complain when prices are rising and higher than asking price offers come in. Plenty of sellers have been happy to take advantage of gazumping. Now the shoe is on the other foot, sellers will just have to adjust. Some may choose to withdraw from the sale when an attempt to gazunder is made, but they take the risk in a falling (possibly even crashing) market that by the time another offer comes in this will be even lower than the gazunderer's offer. The best tactic is to price realistically (perhaps even a little below the current market price) catch a strong buyer quickly and move to exchange as quickly as possible. It's not difficult, only greed makes it so!
Graham, Oxford, UK