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Sales Trends - Latest report from www.arlets.com
Dated: 26th April 2006
Gazumping and gazundering: What to do if it happens to you
Both of these phenomena are not mutually exclusive to one another, equally both can occur in one market place or another.
This usually happens in a sellers market, when buyers are active and properties are scarce. Gazumping is when a property sale is agreed with the buyer and vendor and another buyer comes along and offers a higher price.
Should you experience this as the Estate Agent, the buyer or the seller, here is a quick check list to follow.
A: Did the second (higher) offer occur within 48 hours of the first (agreed)
If A: Someone can take a few days to think about making an offer despite pressure from the Estate Agent (they are there to encourage offers, but some buyers resist any pressure, wishing to make up their own mind in their own time).
If B: It could be the second offer came along after the first offer because there were no offers on the property at the time of viewing the property.
If C: Some vendors will accept an offer but will not remove the property from the market place until either a survey has taken place or an exchange of contracts has occurred. It is down to the buyer to negotiate terms of the sale to include 4 weeks withdrawal from the market to allow the buyer time to arrange surveys, contracts, etc. If the vendor refuses to agree to this then the buyer must either withdraw the offer and find something else or try to discover why the vendor is not being flexible. Equally the buyer should at least seek to agree with the vendor that the property should not be sold to someone else if another offer is put forward, but be offered on a first refusal basis. This means the first buyer is first to buy and the second is a reserve buyer should the first buyer not perform an exchange of contracts within an agreed time scale. Again the estate agent (if involved with the sale) should advise the vendor and inform all parties of the final decision before the matter becomes costly.
If D: Some vendors just go to one estate agent (perhaps they bought through them or by recommendation) and don't follow the basic procedure of getting three independent valuations. There is nothing wrong with this except the following can occur.
The estate agent is having a poor sales month, not agreeing many sales and perhaps seeing a negative market. In this instance the agent valuing the property is a bit conservative on values.
The estate agent may not be particularly strong in the type of property offered for sale, for example in my own experience my own property was valued by my own organisation at £40,000 less than our competitors for the simple reason that the manager of the branch sold mainly town properties and mine was a country property. The manager had little experience or knowledge of this type of property so could not see its full potential.
The estate agent may have had a buyer in mind who was looking for the exact same kind of property but on a limited budget, so the estate agent didn't research other buyers before the valuation and consequently under valued the property.
If E: Of course there are other reasons:
For example the house has been on the market for over 6 months at a price initially too high, due to no interest the property price is reduced and the market has moved forward creating an imbalance on price, where the house was too expensive is now too cheap (this happens more often than people expect I have seen this happen many, many times.
If F: This is more worrying as often is the case when one person wants a property so does someone else. But on the same day? Yes more likely if the property has been on the market for less than a week and the estate agent has efficiently marketed the property to all potential interests in a short period of time it is very possible to generate two buyers, but if the estate agent has an offer on the table at an acceptable price but not agreed yet by the vendor the agent should warn the second buyer there is interest in the property but nothing agreed or if the offer has been agreed the second buyer should be told there is an agreed offer on the property before viewing. The vendor should be told prior to the second buyer viewing the property and take the vendors instructions (does the agent make the viewing or not).
If G: If the estate agent pays the negotiators on personal commission where the selling negotiator gets all the commission, and nothing to the other negotiator, can create competition in the office. Therefore negotiator 1 sells to first buyer and negotiator 2 sells to second buyer (sometimes knowingly there is an offer agreed already).
Sometimes the agent may have doubts about the first buyer and not wishing to leave things as they stand continues showing the property. The vendor should give the agent written instructions about further viewings after a sale is agreed, to ensure there is no confusion. From a vendor point of view it is best practice to either not show the property after agreeing an offer for 4 weeks or only accept viewings on a first refusal basis and the vendor should make sure the agent complies with the instructions given.
Fear of losing the property: The two buyers both see the property on the same day (or within a day or so of each other) one buyer decides to gazump rather than losing the property. A decision like this is nerve wracking for the vendor and agent because usually the buyer then finds reasons why he should renegotiate the price lower once the other buyer is out of the frame this is called gazundering. My philosophy is "Easily given, easily taken away". If you accept a gazumping offer you can expect the worse will very likely happen.
The best practice is either take the first buyer or ask the agent to ask each buyer of their best offer and be prepared to walk away if the deal doesn't go their way. Give both buyers 24 hours to think about it and make sure the estate agent doesn't tell the position of each buyer to each other (Dutch Auction) as this will lead to bitterness from both buyers and probably lose the sale.
If you feel the agent is advising you poorly then talk to one of the other agents about how to complain to the NAEA or Ombudsman and tell the instructed agent you are considering withdrawing from their books if you are still not satisfied.
Most agents are pretty good these days, the laws are getting better and most vendors are reasonably experienced in buying and selling to know when something is up.
This happens more frequently in quiet markets where more sellers are chasing fewer buyers. Like gazumping it is best the vendor takes the following precautions:
A: Did the vendor get 3 independent property valuations before going
There are other potential reasons such as unclear boundaries, problems with neighbours/landlords that can put a buyer off the property unless the price is right. But these issues should be discussed and understood by the estate agent prior to marketing to avoid obvious problems in late negotiations.
If A: As a vendor you want the best possible price, in a quiet market it is tempting to take the highest valuation, but if the agent doesn't demonstrate comparable evidence of selling a similar home to yours in recent weeks then you are probably wasting your time and the agent is just deluding himself to boot.
If B: If your house has been for sale for over 6 months and the best offer comes in much lower than you hoped for then check A: again. If the price offered seemed fair and then just before exchange of contracts the buyer wants to renegotiate the price, why? If you are in a distress sale situation the buyer may be aware of this, not all buyers are honourable (and neither are all agents). Again check A: on price if the new offer is much lower than the lowest valuation speak to the other estate agent about a reasonable price (they may have someone prepared to pay more and you can use this as leverage with your present buyer). Again is your agent advising you properly? When I experienced this as an agent and the buyer was dropping the price with no real reason I would tell the vendor I my thoughts and simply ask this: "Despite the buyers intention to not stick to the agreed price can you still move on the new price, if yes then take it if no then lets drop the buyer and start again". I would obviously explain that this may also bluff the buyer in to paying the original price, but the bluff could backfire. As a vendor be aware of the facts, always be sure the buyers reasons are legitimate, if they aren't is the agent keeping you well informed?
If C: Whose side is the agent on? Did the agent tell the buyer that you are desperate to sell at any price? In most cases it is best to tell anyone interested you are simply trading up or down. Therefore your price is fixed as you cannot buy something else if you don't achieve your price. That said if you are trading up, you might find the gazunder might start a chain reaction, Your buyer drops your price by £5,000 and your seller may accommodate this, but if your seller doesn't agree then you shouldn't either unless the property you are buying is a once in a lifetime opportunity (aren't they all though?)
If D: The leaking roof, damp in the basement or a rotten window are always favourites of the gazunder, if you have the funds to fix the problem then tell the buyer this is what you are prepared to do, but if the buyer genuinely is only negotiating the cost difference then fair enough. (£1,000 to replace a window might be high but not unacceptable, £2,000 to fix damp is OK too, but not £10,000 unless the property is very big and the problem also.
If E: Your property is in superb condition, then tell the buyer to pay the price or be prepared to start again (review C first just in case). Your property is in average condition, well some price negotiation is probably in order, but painful all the same, if the property is in need of a lot of work, then you should be looking at selling via an auction and not a high street estate agent (furthermore you should have had an auctioneer value your house prior to going on the market).
Do everything as above including getting agents to value the house first, DO NOT INFLATE THE PRICE just because you think you know better than the estate agent, in most cases you don't. Set a realistic advertising budget to cover local newspapers and Internet advertising. This should be 50% of what the estate agent is going to charge you, research your market first, buy a for sale board, tell your neighbours and friends and make sure you have the time and energy to promote your home.
Even with the new Home Information Packs it is unlikely we will see an end to gazumping or gazundering, so be prepared and don't be pushed in to a decision until you have all the facts.
Written by www.arlets.com, the new property website coming soon.
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