Gazundering is back as sellers are stitched up at the 11th hour

Forget about gazumping – the power is with buyers in a falling market and some are using it to force down the price. Esther Shaw reports

Anyone looking to sell a home will agree that there's not much to smile about at the moment as prices are falling and property is shifting slowly.

And things could be about to take a turn for the worse as a practice known as "gazundering" starts to rear its head again.

While gazumping was synonymous with the 1980s housing boom, the curse of gazundering was last rife in Britain during the recession of the early 1990s, when a stagnant market gave buyers the upper hand.

In effect, this rather sneaky activity involves the buyer stitching up the seller by waiting until both parties are poised to exchange contracts and then lowering the offer on the home.

"Sometimes this is done because the buyer believes the property has fallen in value since the original offer was made," says David Smith from estate agent Dreweatt Neate. "At other times it's because the buyer is simply chancing his arm – a kind of brinkmanship."

Gazundering is especially prevalent when the parties are part of a chain, and can be a real issue for those on the receiving end, as if the seller refuses, the whole chain might collapse.

"Gazundering is as likely to happen in a buyer's market as gazumping is in a seller's market," says Melanie Bien from broker Savills Private Finance. "Nobody wants to pay more than they need to for a property."

Louise Cuming from price-comparison service Moneysupermarket.com adds that the multitude of headlines highlighting falling house values, the lack of mortgage deals, the dearth of first-time buyers and the the rising cost of borrowing is also "bound to drive opportunist buyers into attempting the gazundering tactic".

Katie Tucker at broker Charcol says buyers have currently got vendors "over a barrel". She adds: "It can take around six weeks from having your bid accepted to getting to exchange. Given that the market is falling, your property may well be worth less at the end of this period. If a buyer insists on paying a lower price just before exchange, the seller may well believe he would be unsuccessful in remarketing his home at the same value and so waiting longer – and will accept."

While gazundering may seem a pretty unethical practice reserved for only the most calculating and uncaring buyer, it is perfectly legitimate. "The practice is legal in England and Wales," says Ms Bien. "Until contracts are exchanged, either buyer or seller can pull out of a deal or decide to change their offer or asking price."

So at present, a seller has no legal recourse.

"It is possible to keep your house actively on the market until contracts have been exchanged, so that if anyone tries this sharp practice, you may have other potential buyers in the frame," says Ms Cuming. "But in reality, when an estate agent feels they have a serious offer, they will not put time and money into trying to secure a back-up."

If you do fall prey to gazundering, you will be faced with a dilemma. "You need to consider whether to cave in to the reduced offer – or to hold out for the money and run the very real risk of the whole thing collapsing," says David Holling- worth from broker London & Country. "If you do agree to the lower offer, this may well put pressure on the whole chain, as the capital loss could be a problem if you already have your finance in place."

That said, if your instinct is to pull out of the transaction, put your home on the market and start all over again in the hope of a better offer, you could risk losing the property you were planning to move to.

The crux is that vendors are "at the mercy of buyers" in a falling market, says Andrew Montlake from broker Cobalt Capital, who adds that until the Government decides to change the current system, gazundering is not going to stop.

However, there are steps that sellers can take to help reduce the risk. "It's vital you go with what your valuer says and put your property on the market at the right price," says Mr Montlake. "If the price is realistic, this will help you to get an offer quickly."

By the same token, if a seller decides to lower their sights on the asking price, some buyers might see no reason why they can't be lowered still further.

"Be sure that your estate agent 'pre-qualifies' buyers," says Mr Smith at Drew- eatt Neate. "Chain-free buyers with mortgage offers in place can move a lot more quickly than those without, and this can reduce the opportunity for buyers to claim the value of your home has fallen since the original offer was made."

Ms Bien comments: "If the buyer does reduce their offer, you are within your rights to ask why, and to offer to meet them halfway."

"But make sure you have an absolute minimum price in mind, below which you are not prepared to go."

Campaigners across the housing industry have long been calling for the Government to make the home-buying and selling process more straightforward, and many believe that England and Wales could benefit from implementing the Scottish system, where an agreement is legally binding as soon as an offer is accepted.

That said, for those tempted to try their hand, there are risks associated with playing the gazundering card.

"It could be that the vendor is in no rush at all and will call the buyer's bluff by simply putting the house back on the market," says Mr Smith. "If this happens, the buyer could lose thousands of pounds in mortgage and legal fees."

At the same time, Ms Tucker at Charcol points out that if the seller does accept the lower offer, the buyer will need to get their whole mortgage re-offered in the light of the new purchase price.

"This is hugely dangerous in this market as the process could take two weeks. As rates may well have gone up somewhat in that time, it could be that the lender refuses to give you the deal you had agreed and you face a higher rate,"

'We were just about to exchange, and they reduced their offer'

Nick Tatchell, 35, recently fell victim to gazundering when selling his three-bedroom home in south London.

Nick, a builder and developer, put his flat on the market at the end of January and got an offer at the asking price on the same day.

"The price was £345,000, and when the buyers, a young couple, agreed to pay that, I accepted," he says. "However, the property market changed a great deal over the next three months and I began to feel that the buyers were stalling. And then, just as we were about to exchange last month, they came back to me and dropped their offer to £330,000."

Nick felt the new offer was unreasonable and refused to accept it – warning the buyers that he would put the property back on the market.

"Their attempts at gazundering were not entirely unexpected, especially as I'd noticed that they were looking for flaws in my flat and trying to pick holes in an attempt to negotiate the price down," he says. "In the end, I came to an agreement and settled for £337,500."

Nick now hopes to exchange and complete in the next few weeks, having already completed on his new home, a Georgian property in Shropshire.