13 October 2016
Last updated at 12:16
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Gazumping (… and Gazundering): Why alternative offers are always in the property market spotlight
We ask Andy Payne, from Northcott Beaton, providers of our ‘Safe as Houses’ Property Transaction Insurance, to explain ‘Gazumping’ and how you can safeguard your fees in the event that a purchase fails to complete.
The volatility of the property market can be simplified by placing it in terms of pure supply and demand. When demand outstrips supply, property values soar and there seem to be more potential buyers than there are properties. Conversely, when supply outstrips demand there seems to be a glut of properties on the market with proportionately low values and nobody there to buy them.
The intricacies of this forever changing fluctuation mean that, at any one time, either the buyer or the seller has the upper hand in a property transaction. When demand outstrips supply, the vendors run the show which means that buyers constantly face the risk of other buyers stealing their new home away from them at the very last minute, perhaps in the form of a higher offer financially or a more desirable offer (maybe chain free or a cash purchase). This is called “Gazumping” but there is a lesser known phenomenon that operates at the other end of the scale – “Gazundering”.
“Gazundering” occurs when supply outstrips demand. In this situation, due to the progressively slow moving market, a purchaser (with an offer already accepted) will re-approach the vendor and lower their offer forcing the vendor to take it or risk not selling the property.
“Gazundering” leads to low property values, which leads to more buyers, which increases the demand, which increases the incidence of “Gazumping”. This increases property values, which leads to more sellers, the supply outstrips demand and we are back to “Gazundering” again. In this respect, the property market does not ever evolve, it revolves. The length of time for this orbit can vary, normally in correlation with national economic performance, interest rates, inflation, tax implications etc. However, it means that, at any one point, a buyer or a vendor of any property is at risk of losing their transaction. Each purchase transaction must have an associated vendor (and vice versa) and that vendor may be buying somewhere else etc etc etc . . . the chain can be very long and is only broken when there is either a relative first time buyer or a property is being sold with no onward chain. The more links in this chain, the more chances that the transaction may not complete.
There are approximately 750,000 to 1 million successfully completed residential transactions per year in the UK with over 170,000 transactions falling through. At an average, each of these aborted transactions costs the consumer £996 in abortive solicitor’s fees, survey fees, mortgage lenders arrangement fees, disbursements. This works out to be an average total loss to consumers of circa £169,320,000 PER ANNUM! These costs can be covered by insurances which could potentially soften the blow in what can be a very costly experience both financially and emotionally. When you instruct PSG for your searches, you can simply add the ‘Safe as Houses’ Insurance policy to your order, providing cover up to £1,500 in the event that a transaction fails to complete, subject to the policy terms.
For more information about the 'Safe as Houses' policy. call your local PSG office, email customerservices@propertysearchgroup.co.uk, or see our product page here
All insurance products are provided by PSG Financial Services Limited which is authorised and regulated by the Financial Conduct Authority.
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