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Why gazundering could cost you that mortgage offer

Rhino Home Protect 25 September 2023

You're a homeowner who has just accepted an offer on your property. Excitement fills the air as you imagine the next chapter of your life. Then the unexpected happens just when you think you've sealed the deal. The potential buyer comes back to you with a lower offer, trying to renegotiate the price. This practice, known as gazundering, can catch homeowners off guard and leave them questioning their next move.

Gazundering is when a buyer reduces their initial offer for a property right before the exchange of contracts, potentially causing financial and emotional distress to the seller. It is a practice that introduces uncertainty and can disrupt the smooth progress of a property transaction.

The Mortgage Application Process

To understand why gazundering could cost you that mortgage offer, we should start at the beginning, understanding all the steps to obtain a mortgage in the first place.  

The mortgage application process involves several steps to secure a mortgage offer. Here is an overview of the key steps:

  1. Gather financial documents: Collect necessary documents, such as proof of income and bank statements.
  2. Check your credit score: Review your credit score and address any issues.
  3. Calculate affordability: Assess your financial situation to determine how much you can afford.
  4. Research mortgage lenders: Explore different lenders and their products.
  5. Obtain a mortgage agreement in principle: Get an initial assessment of the amount a lender will lend you.
  6. Find a property: Begin your property search with your budget in mind.
  7. Make an offer: Submit an offer to the seller based on your budget and the lender's assessment.
  8. Complete the mortgage application: Submit a formal application with accurate information.
  9. Property valuation and survey: The lender assesses the property's value and suitability.
  10. Mortgage offer: If the criteria are met, the lender issues a formal offer with terms and conditions.
  11. Review and acceptance: Carefully review the offer, seek clarification, and accept it.
  12. Exchange contracts: Finalise the purchase agreement with the seller.
  13. Completion: On the agreed date, the lender releases funds, and you become the legal owner of the property.

A mutually agreed purchase price is crucial in securing a mortgage offer. Lenders evaluate the property's value based on the purchase price, and any significant changes may impact the loan amount or even lead to a rejected or reevaluated mortgage application. Negotiating in good faith and reaching a mutually agreed purchase price helps ensure a smoother mortgage application process.

Why Gazundering May Be Tempting

Why would someone take the risk and consider gazundering in a property transaction? One common motivation is the perception of gaining a better deal by reducing the purchase price, potentially saving money or securing a perceived bargain.

Market fluctuations and financial constraints are other reasons buyers may want to take advantage of declining property prices or make the property more affordable. Some buyers view gazundering as a negotiation tactic to gain leverage or exploit the perceived vulnerabilities of the seller.

The Risks of Gazundering

Before proceeding with this strategy, you should carefully weigh these motivations against the potential risks and consequences of gazundering.

  • Negative impact on the seller-buyer relationship: Gazundering can strain the relationship between buyers and sellers, leading to a breakdown in trust and goodwill.
  • Potential legal and ethical implications: Gazundering may raise legal and ethical concerns by renegotiating a previously agreed-upon purchase price.
  • Damage to Your Credibility: Engaging in gazundering practices can tarnish your reputation within the property market, affecting your credibility as a buyer.
  • Impact on future property transactions and reputation: Gazundering can make it more challenging to secure future property transactions, as sellers and agents may be hesitant to work with individuals known for engaging in such practices.
  • Potential reluctance from lenders and sellers to work with you: Lenders and sellers may become wary of working with buyers with a history of gazundering, potentially leading to difficulties in obtaining mortgage offers or securing desirable properties.

The Effect on Mortgage Offers

Gazundering can impact the mortgage offers you receive and the overall outcome of your mortgage application. Lenders closely evaluate property values and price changes, and any last-minute reduction in the purchase price can have repercussions on the mortgage offer. Let's explore the two main aspects of how gazundering affects mortgage offers.

Lenders' assessment of property value and impact of price changes:

Lenders evaluate the property's value during the mortgage application based on market trends and conditions. Gazundering's sudden price reduction raises concerns for lenders, potentially leading to a reassessment of the mortgage offer. They may question the initial valuation and market conditions, impacting the final decision.

Increased risk of mortgage application rejection or reevaluation:

Gazundering raises the risk of mortgage application rejection or reevaluation. Mortgage offers consider factors like purchase price and financial circumstances. A significant reduction due to gazundering may no longer meet lender criteria, potentially leading to rejection or revised terms, affecting loan amount and interest rates.

Alternatives to Gazundering

Although gazundering may seem tempting, you should consider alternative negotiation strategies prioritising fairness, trust, and open communication. 

Here are some other options to gazundering:

  1. Instead of springing a last-minute price reduction, maintain open lines of communication with the seller. Discuss your concerns, needs, and any changes in circumstances that may warrant a revision of the offer. Look for areas where you can compromise to satisfy both parties, such as adjusting to non-price factors and agreeing on specific repairs or additional items in the sale. 
  2. Think outside the box and explore alternative solutions that address the concerns of both the buyer and the seller. Consider adjusting the terms of the agreement, such as extending the completion timeline or offering flexible payment options. 
  3. Approach the negotiation process with fairness and respect for the other party. Actively listen to the concerns and interests of the seller, and be open to finding common ground through respectful negotiation.

Remember that the goal is to find a mutually beneficial solution rather than exploiting the situation.

Tips for Successful Negotiations

Navigating the negotiation process in property transactions can be tricky, especially when faced with the possibility of gazundering. Here are some tips to successfully conduct negotiations:

  • Conduct thorough research: Gather as much information as possible about the property value and market conditions before negotiations. 
  • Build a strong rapport: It is crucial to establish a positive and professional relationship with the seller and their agent. Building trust and open communication can create a cooperative atmosphere and increase the likelihood of finding mutually beneficial solutions.
  • Prepare alternative options: Consider different scenarios and potential compromises that could meet both parties' needs. Being flexible and open to creative solutions can help break deadlocks and lead to successful negotiations.

Understanding the risks of gazundering is crucial for homebuyers navigating the property market.  By recognising the potential consequences of this negotiation tactic, readers can make informed decisions and approach negotiations with fairness, transparency, and integrity – safeguarding your mortgage offer and preserving positive relationships within the industry.

In the ever-changing dynamics of property transactions, surprises like gazundering can strike a nerve, leaving homeowners vulnerable. However, while you can't control every twist and turn of the property market, you can be prepared.

Rhino Home Protect offers Gazundering Insurance, which stands as a fortress against such uncertainties, offering peace of mind to both buyers and sellers. It's not just about securing a property; it's about securing your peace of mind. Don't let gazundering leave you exposed. Contact Rhino Home Protect today and arm yourself with the best protection for your property journey.

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