'Gazundering' deepens homes slump: Buyers demanding last-minute cuts in agreed prices are the latest threat to recovery, writes Jason Bennetto

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The Independent Online
HOME-BUYERS are using a form of blackmail to force down property prices, deepening the slump in the housing market. The practice of 'gazundering' - demanding a price reduction shortly before exchange of contracts - is becoming widespread, particularly in the South-east.

The growth in gazundering is due to the depressed housing market, in which sellers are often willing to make concessions because they are desperate to sell. The shortfall is often passed through a chain of deals, further forcing down prices.

Gazundering is linked with the growing number of properties being 'down-valued' by surveyors. Estate agents believe that valuing property below the agreed price is the single major reason for sales collapsing and that about a third of deals are lost for this reason. Buyers often have to pull out because mortgage companies will provide a loan only up to the sum specified by the valuer. If this is much below the agreed price the buyer often cannot make up the shortfall.

There have been calls for legislation to outlaw gazundering, something Jonathan Greenhalgh would support wholeheartedly. After three months of negotiations he believed he had sold his two-bedroom flat in Clapham, south London. He accepted an offer of pounds 125,000 a year after putting the flat on the market at pounds 140,000 in March 1991. The deal looked a certainty as the buyer, a single woman, already had pounds 90,000 in cash. Meanwhile, Mr Greenhalgh, 31, and his wife had found a new home and an offer had been accepted.

But on the day the contract was to be signed he received a telephone call from his solicitor saying his buyer was going to pull out. Several days later she made a new offer: pounds 110,000, later increased by pounds 2,000. Mr Greenhalgh, an advertising agency director, said: 'I couldn't believe it - I had found a new house and paid for surveys, I was frantic.'

But rather than give in, he telephoned all the estate agents in his area and within a week had two offers of pounds 125,000. On Friday he exchanged contracts. He said: 'The last few months have been a nightmare. The woman obviously thought she had me over a barrel and could get some money off - I was very lucky to escape.'

Members of the public are not the only people taking advantage of the depressed market. The Department of Transport informed an elderly couple last week that because of the fall in property values, a house for which it had agreed to pay pounds 97,000 under a compulsory purchase order was worth pounds 16,000 less. The house is on the A40 in west London and is being bought by the department for a road development. The couple were about to move to a house costing pounds 122,500, but had to renegotiate the price to pounds 120,000 because of the decision. The couple's daughter is making up the shortfall.

The Government is understood to be concerned about the growing practice of down-valuing and ministers are expected to ask mortgage lenders to ensure valuers do not further deflate the market by being over-cautious.

There are several reasons why surveyors down-value property. They can be forced to pay compensation to mortgage companies if they significantly over-value a property which is later repossessed but cannot be sold for enough to repay the original loan.

Valuers are becoming more cautious because of the many repossessions. More than 35,000 homes were repossessed in the first half of this year and more than 300,000 households are now at least six months in arrears with repayments, according to figures released on Thursday. For the same reason some building societies tell firms of surveyors, many of which are owned by the societies, to be 'cautious' and 'conservative' with valuations.

Another reason for down-valuing is that some estate agents deliberately mislead surveyors who seek their advice on local property prices. The agents tell them that the property is worth less than it actually is. They hope the sale will fail and the vendor will ask them to handle the property.

Andy Westbrook, an independent estate agent covering north- west London, said: 'Most surveyors are totally ignorant of valuations. We get calls four or five times a day from them asking what property in our area is worth - all agents do. If they can kill some of the deals they will, because they get the work when the sale falls through.'

Estate agents would like to see gazundering outlawed. Almost all of those contacted in the South- east said it had increased significantly since Christmas and that buyers were asking on average for about 6 per cent off the agreed price. Agents in other regions, including Birmingham and Leicestershire, have also had an upsurge in gazundering.

Michael Jones, president of the National Association of Estate Agents, said: 'This is a form of blackmail, whereby vendors are held to ransom. There should be no place for this in the property market.'

Gary Feger, chairman of the association's Middlesex branch and an estate agent, said: 'In west London there are areas where last-minute blackmailing is common.' He said gazundering occurred in up to one in four sales and added: 'Much of it is caused by down-valuing by valuers who are petrified of upsetting the building societies.'

A spokeswoman for the Council of Mortgage Lenders said many valuers and lenders were being 'cautious and conservative', but 'that is not the same as undervaluing'. She said everyone wanted to avoid people over- stretching themselves and having their homes repossessed.

'It may be the case that there's a bit of lack of confidence among surveyors because they don't want to be accused of over-valuing property,' she added.

The Royal Institution of Chartered Surveyors also argues that surveyors have to take into account future market trends, which has resulted in conservative valuations.

Barrie Martin, a member of the Middlesex and Urban Essex branch committee of the RICS, who works in north-west London, said: 'The majority of surveyors do not down-value property. We value it at a realistic price. Errors that are made are usually due to inexperienced surveyors who lack confidence.'

One thing the property professionals agree on is that the Government's attempt to kick-start the market by suspending stamp duty has been an abject failure.

ONE OF the casualties of the collapse of the housing market in London and the South-east is what might be called the castles-in-the-provinces factor. In the boom years of the late 1980s, home-owners could thrill themselves with the thought that their modest London semi or terraced house was worth the price of a small Scottish castle, a moated (if tumbledown) manor in the West Country, or a whole street of two-up and two-downs in Co Durham. Today property prices are much more even, and London and the South-east are in steep decline. The striking comparison is between Greater London and Scotland. According to the Nationwide Building Society, the average price of a London house in 1986 was pounds 54,000, rising to pounds 94,000 in 1989 and falling to pounds 68,000 this year. Scotland by contrast shows a steady rise - with averages for the same years of pounds 33,000, pounds 44,000 and pounds 51,000. The four-bedroom houses in London and Glasgow (above) are still about pounds 100,000 apart in price.