A recent survey found over 40 per cent of all sellers are concerned about gazundering, a practice which tends to increase in a flat or falling property market.
Here Nicola Bennell, residential conveyancing expert with Richard Reed in Sunderland looks at this problem and offers some advice on how to ensure you sell your home at the agreed price.
What is gazundering?
Gazundering is when a buyer lowers their offer price just before exchange of contracts. As the seller, you are likely to be fully committed to the transaction. You will have already incurred costs, particularly if you also have a linked purchase. Having taken your property off the market, if you lose this buyer, you may feel you will be back to square one.
Sometimes a buyer may have a good reason for making a last-minute price reduction. For example, he may only just have received a survey that reveals a serious defect, or he may be trying to pass on a price reduction from further down the chain.
Often though, he may simply be taking advantage of the situation, relying on you not wanting the sale to fall through. His actions may be unscrupulous, but, unfortunately, they are completely legal.
Government proposals to stop gazundering
Until exchange of contracts, there is no binding sale agreement in place and either party may pull out. Estimates suggest one in three house purchases fall through, resulting in £270 million in wasted costs every year.
The government is looking at ways to reduce this and is considering the introduction of reservation agreements. The detail is not yet clear. However, it is likely that both buyer and seller would pay a reservation deposit, in the region of £1,000, on accepting an offer. If one of them pulls out for no good reason before exchange of contracts, that party would lose their deposit.
Although the government is trialing a pilot scheme, there is no firm plan for the introduction of reservation agreements yet. Fortunately, though, there are already some steps you can take to reduce the risk of gazundering.
Consider a lock out agreement
Lock out agreements are like the proposed reservation agreements. However, they are not yet common and the buyer and seller, or their advisors, must agree the terms themselves.
A lock out agreement allows your buyer an exclusive period in which to buy your home at the agreed price. However, it can also require him to compensate you if he pulls out for no good reason.
Agreeing what is a good reason for pulling out can be contentious and prolong the time it takes to reach exchange of contracts. A lock out agreement may not always be suitable but it can give you an extra level of security, particularly if you stand to lose out significantly by taking your home off the market.
Check out your buyer
Your estate agent should check your buyer’s credentials and his proceedability. A good agent should also know when a buyer is chancing his luck, and the best way to approach issues which arise during the sale process. So, choose your agent wisely.
If you are in the envious position of choosing between would be buyers, consider favouring those who are chain free, especially a genuine cash buyer. They are more likely to be able to move quickly and to have fewer issues, such as funding, that could cause problems later.
Sort out issues in advance
Remove any excuses your buyer could use for reducing the price. If you know there is something wrong with your property, either remedy it before putting your home on the market or be upfront about it. This can reduce the risk of him trying to negotiate the price down when a survey reveals the problem or, worse, using it as leverage for a reduction closer to exchange.
It is not just physical defects that can derail the sale. A buyer may also seize on legal issues to justify a price reduction, such as a home extension which does not have the right permissions or a parcel of land without good title. Discuss your plans with your solicitor before you put your home on the market and deal with any legal issues in advance. This will boost your chances of a smooth sale, at the agreed price.
Choose the right solicitor
Find a solicitor who is an experienced conveyancing professional, who will give you close personal attention. Proactively managing the legal aspects of your transaction will minimise the risk of delay. Keeping the parties well informed will avoid misunderstandings, which can easily derail a transaction. So, make sure your solicitor is also a good communicator.
The right solicitor will help keep your sale on track, at the agreed price.
For further information about buying or selling your home, please contact Nicola Bennell or Abbey Tyrrell-Scott in our residential conveyancing team on 0191 567 0465 or email: firstname.lastname@example.org