More on the Housing Market

Mark Wadsworth is discussing gazundering today. I left a rather long epistle in the comments, but felt it worth expanding here. He links to a Daily Mail piece. Now, it isn’t often that you will find me agreeing with the Mail, but on this occasion, I do.

Since the man had already bargained them down from £440,000 to £430,000, then reduced this further, to £415,000, on the flimsiest of pretexts (a quibble about the wording of the lease), the horrified couple felt compelled to reject this 11th-hour exercise in brinkmanship.

So, disastrously, the whole chain has collapsed.

In the housing market, this dishonourable – but perfectly legal – practice is known as ‘gazundering’; a light-hearted term which belies the abject misery its ruthless practitioners are causing to thousands of hard-pressed families – not to mention the damage they are inflicting on England’s battered housing market.

Mark feels that given the inflated market – that is still dropping – gazundering will help matters. I, however, beg to differ. No matter what the state of the market, gazundering is highly unethical. Having agreed a price during the initial negotiations the seller will have made plans based upon this; arranged a mortgage, for example. Now, the gazunderer may simply expect the seller to play the same game with their vendor. However, that will not necessarily work and the gap between property bands has increased unequally as property values increased. What may just about be affordable under the original deal ceases to be with a lower offer. It also relies on everyone in the chain playing ball and many – like me – will not under any circumstances enable such unethical behaviour. I don’t care what happens to values once the deal is agreed – I expect people to behave in a trustworthy manner and keep their word. Therein lies the essential problem with this practice; it erodes trust.

These fuckwits don’t appear to worry about such things.

Some people don’t feel it is an ethical practice, but it is completely legal and therefore it is part of the game. If you don’t play your gazunder card at the right time, you only hurt yourself.

Sellers regularly ask for higher prices, so why shouldn’t buyers exploit the market too? Why should everyone be sympathic (sic) to the seller, who may be selling the house for 100% more than what they paid three or four years ago?

When the seller entered the property market by purchasing his first home, he knew these were the rules allowed by the Government. He took a risk by becoming a property owner, and you should feel no sympathy for him.

You fetid little turds. The whole process relies on trust. Without that, the whole thing becomes a nightmare. It’s bad enough as it is, without people actively advocating such behaviour. Yes, gazundering is unethical and, frankly, we should adopt the French or Scottish system where the agreed offer is binding. The French system (of which I have some experience) is painless compared with ours. It goes like this:

You view the property and make an offer. The property comes off the market for up to ten days while the vendor considers the offer and negotiations take place. Once an offer is agreed, the property remains off the market and the seller places a deposit of 10% with the agent. At that point a completion date is agreed – usually about eight weeks to allow for finance and such. Then the exchange takes place. Pull out or try re-negotiating and you lose your deposit. It’s a good system and it works.

The “Gazundering is Good” people also try to pull the massive profit trick – as, indeed does Mark:

Er … Mr & Mrs Cooper … you bought your house in 1970 for how much … £5,000, maybe? And you’re happy to sell for £415,000 (a compound annual tax-free return of 12.33%, after inflation), but not for £365,000 (a compound annual tax-free return of 12%, after inflation)?

The value increase is irrelevant unless you intend to release the equity. If I was buying in the UK, I would simply see a larger mortgage, not the £100k of increased equity that my property has generated over the past twenty years. As it is, buying in France (when we finally sell) will mean that I will be rid of my mortgage, due to lower property vales compared to the UK. I am, however, the exception rather than the norm here. And, even though those figures take into account inflation, they only reflect a part of the market. I recall some years ago a fellow bike club member complaining about the price of petrol – he could recall when it cost 1s/6d a gallon back in the sixties. My response at the time was to ask what he earned then and now and what proportion of his weekly wages were spent on petrol compared with now. Longrider Towers may be worth £100k more than we paid for it twenty years ago, but the average wage is also rather more. Indeed, at our end of the market, it is worth the same in real terms as it was then – in fact, slightly less. The problem for our potential buyers is the unwillingness of lenders to lend. And, those lenders now want a decent deposit – just as they did twenty years ago.

Bottom line? Gazundering is nothing less than blackmail. I would never give in to it and I would never pass it up the line. Equally, I would never engage in gazumping. The poisonous “Gazundering is Good” website advice if followed on a national scale would create havoc – not to mention that it is highly unethical (these people seem to have difficulty differentiating between legality and ethics – just because something is legal, it doesn’t make it ethical and it doesn’t mean that you should do it, for fuck’s sake!).

The Mail outlines just why their ideas are so bad:

To anyone with any inkling into the machinations of trading one home for another, the chaos that this sort of morally bankrupt, Arthur-Daley-style wheeler-dealing could inflict is crystal clear.

Widely practised, it could shatter the essential trust between buyer and seller, destabilise prices to the point where an estate agent’s valuation becomes meaningless, and sabotage so many interdependent deals that the entire system starts grinding to a halt.

It is that essential trust that underpins the whole thing. “Gazundering is Good” seem to think that the vendor is the enemy rather than a trading partner in the process who is trying to move home. Mrs L and I are fortunate in that we have a potential buyer that we know and trust. As she is unable to raise finance (even when we offered a deal that effectively meant we lent her the deposit) at the moment she is going to rent Longrider Towers until the situation changes. Trust is essential in this process and these people would undermine it more than it already has been.

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Update: Mark challenges my figures:

LR, the indexation calculator says that £36k in 1988 adjusted for earnings would be £85k by 2006 (and probably about £92k by now). That’s way short of £140k.

It’s worth pointing out here that my figures are based on what you could borrow against average income – i.e. how affordable the property was then and now. Now, it is slightly more affordable than it was then. This doesn’t undermine Mark’s point about inflation – certainly at the higher values. It is also worth pointing out here as I did at his place; that I have not made a profit of £55k as I have spent several thousand pounds in the intervening years maintaining, renovating and replacing. When I do finally sell, I won’t suddenly find myself rolling about in £55k – no, really, I won’t.

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Update: One other thought occurs to me. Given that these gazunderers are plotting from the get-go to treat their vendor with contempt, it might be worth making the point in the initial negotiations not only that gazundering – even at a very late stage – will not be tolerated, but will incur a penalty. After all, these people want to be business like – well penalty clauses are a perfectly acceptable business practice.