Gazundering is Back in the Property Market and is been Exploited by some Landlords and Investors

Landlords have to search hard for the positives in the current property market. House prices are falling; last week Halifax, the UK's biggest mortgage lender released figures suggesting that the down turn is gathering pace. Halifax said its index of house prices fell by 1.3% last month, a bigger drop than analysts had expected. More worrying for landlords was the assertion by the economist at the Halifax, Martin Ellis that he expected a ‘mid single digit' decline in house prices this year, with bigger falls in some regions.

The one positive that I have been able to draw out from the current market conditions is that the phrase ‘gazundering' is back. What a great phrase and surely one that has enough literal titivation & mirth to compensate landlords for the depressive state of the property market.

Gazundering vs gazumping
Gazundering is the counter point to gazumping. Gazumping being the activity of outbidding a purchaser who had already agreed a property sale with the vendor. This activity is associated with an overheating residential property market and was only too prevalent very recently in property hotspots such as Mayfair and Kensington. Gazundering on the other hand is a sign of a falling market. It refers to a purchaser withdrawing their offer & replacing it with a lower one just prior to exchange of contracts; this is the point at which the two parties become contractually bound.

The return of the gazunder
Money Week reported last week that the gazunderers had returned. They highlighted the case of a London homeowner who agreed to sell his home for £3.5 million two weeks ago. In the present climate this seller must have been thanking his lucky stars. Unfortunately, his joy was short-lived. At the last moment before exchange of contracts the buyer reduced his offer by £250,000.

A landlords' moral dilemma
The practice of ‘gazundering' draws criticism from many property professionals. Ed Mead of the London Estate Agent Douglas and Gordon describes the practice as "totally, morally reprehensible".

The dilemma for cash strapped landlords is that there is no law against the practice. In a falling market and where there may be several months if not more between agreeing a sale and completion, property prices may actually fall during this time putting a landlord at a financial disadvantage. Gazundering therefore if a property investor can live with their conscience can provide a way of counter acting this. Providing then that a property investor is happy to take the risk of the deal falling through how would a landlord go about it?

How to gazunder your way to an investment bargain
The secret for a landlord is to wait until the last moment before exchange - ideally the last 24 hours - and announce your new, lower offer. The secret to a successful gazunder is pitching the new offer at the right level. Too low and there is an overwhelming risk that the vendor will just walk away from the transaction leaving the property investor with legal and survey fees but no buy-to-let property investment. However, if the landlord judges the temperament of the vendor and situation correctly they could shave in an instant 5-10% off the purchase price of an investment property.

One technique that property investors can employ to make the whole process more palatable is to use the findings of a building survey to justify their move and also not to leave the gazunder to the very last minute. Ed Mead of Douglas & Gordon sees as "actually perfectly reasonable" a revised offer where there has been a delay in completion of the sale or the findings of a survey indicate that work is required on the investment property. Frequently a building survey will come up with a recommendation that a specialist contractor is employed such as a damp proof or roofing specialist that can report on whether additional works are required to bring the investment property up to a good state of repair. A landlord can use this to back up their gazunder arguing that their original offer did not reflect the cost of these additional works.

It was reported in Money Week last week that even the stars are at it.
TV present Holly Willoughby reportedly knocked £22,500 from her offer on a £1.645m London home the day before completion, due to damp problems.

The advice from Property Hawk to landlords is that gazundering is a high-risk strategy and only suitable for the brave. A property investor could easily be left ‘high & dry' with survey and legal fees to pay and no investment property to show for all their hard work. However, in the current market with a shortage of buyers and low levels of sales activity a well handled gazunder could deliver significant savings to a property investor and provide them with a property investment bargain.

PropertyHawk.co.uk , is aimed directly at UK Landlords. The site incorporates free property management software lets a landlord track their financial data relating to their portfolio. A mass of information on BTL mortgages and landlord insurance.