Definition: Last minute cut in offer price by prospective purchaser.
When does it apply?- Sale of residential or commercial property.
Why do it?- Either to save money on acquisition of property or (less frequently) to scupper a competing sale by a competing owner of a rival property.
When does it happen?- Usually close to exchange of legal contracts and usually when the buyer is in a stronger "position" than the vendor.
How to do it- (Example) Make an offer on a house. The house is removed from the market by the vendor or their Agent and solicitors are instructed to progress towards exchange of contracts. Just before contracts are exchanged you raise an "issue" with the house. For example you state that a belief that the wiring needs to be replaced or that there are concerns with the drainage or whatever weakness is specifically plausible and could be applicable to the condition of the house. Ideally this is something that is based partially on a fact. It may have been picked up during your due diligence procedures or by your surveyor but you exaggerate the importance to gain the position of strength that you need to use as leverage. Phone the vendor (preferably direct) and tell them that due to your recent findings that you have no alternative than to deduct £X000's from the purchase price to cover the cost of the "defect". Preferably you have in hand some quotations from a "friendly contractor" to substantiate your figures. Just as long as the vendor does not know that the quotation is from you brother in law/cousin/godfather/long term family friend!
Why do vendors fall for it?- They don't always. But whether they believe you or not they are left with this decision- Agree to your reduced offer and proceed with the sale or re-start marketing the property. They have often incurred legal costs or may even have exchanged contracts for their new house pending the sale of their current home.
GOLDEN RULES fOR GAZUNDERING - STEELBEE.COM
1) You must have a fall back position and be prepared to lose the deal. Ideal if you like three houses but can't decide which to go for. Gazunder all three and see what happens. Just make sure that all three are using different agents! Do not worry about offending agents by pulling out of deals, they just want their commission.
2) Stronger position of Buyer = More money off (whether market related, or personal circumstances).
3) Try and establish by hook or crook from the vendor of their agent the lowest price acceptable to them. Do not ask directly as first but try and work it out.
4) Maintain good relations at all time with the vendor and their agent.If they like you they are more likely to believe you.
5) Apologise for your change of offer but explain that due to your recent findings you have no choice.
How do I avoid gazundering?- Difficult in a free market environment which allows it to happen. At a minimum extensively pre-qualify your prospects and make it clear from the very start that you will not reduce the price any lower than the advertised asking price. Have back up purchasers and keep them sweet while you move towards exchange. Leave the For Sale sign up but show the property is under offer. Your agent has a duty to tell you about offers received. You never know you may even get a chance to gazump a gazunderer. What a result that would be. Read More at www.steelbee.com
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