Exploit The Housing Crash To Your Advantage

At last buyers have some power in the property market. But should they gazunder to make the most of house price falls?

Homebuyers, especially first-time buyers, have spent a long time feeling powerless in the property market.

First it was a challenge to save a deposit, because house price inflation was rising at a faster rate than most people were able to save. This meant your deposit as a proportion of the property price was often getting smaller the longer you saved.

And then there was the tricky business of making an offer. It has long been the case in many parts of the country (though not all) that the asking price was exactly what the seller expected to get -- and in many cases they got it.

After that, of course, came gazumping, where a seller accepts an offer but then later accepts a higher one from someone else. It's been going on across the country in the last few years and many first-time buyers have lost thousands of pounds in solicitors' fees, while prices spiralled further out of their reach.

So forgive me if, as a potential first-time buyer who has been priced out for years, I take a crumb of comfort in the fact that this is no longer the case. The balance of power has shifted and the buyer - particularly the first-time buyer - is now in control.

Boon for buyers

House prices are falling and the pendulum has swung. Buyers are like gold-dust, and cheeky offers have begun in earnest.

According to The Royal Institution of Chartered Surveyors, the gap between asking and selling prices is widening, with houses selling at an average of 9% below the asking price.

Sellers in the North are being forced to accept 12.5% off their advertised price. But while they may be accepting the lowest offers, it's in the North West that the majority of sellers will accept an offer below asking price. A massive 82% of chartered surveyors reported that the gap had widened in the last two months between asking and selling prices in the region. Which is perfect for me because I live in Manchester and I am looking to buy.

Plus RICS suggests that the gap could widen in the coming months as the downturn in the economy becomes more visible.

Deep discounts

So how much should you offer below the asking price of a property? Given the figures above, 10% seems reasonable to me, but it is possible to get more localised information by looking at the records of other sales in your area.

Hometrack is a property company that provides statistics on the market as a whole, as well as specific data relating to certain postcodes and even properties. For example, you can key in a postcode and see details of all the sales in that area and what they went for.  

You can also look at the sale to asking price ratio in your postcode -- in the block of flats where I rent in Manchester city centre for example it's 93%; the viewing to sales ratio (mine is 18); and the monthly price change. Flats in my block have dropped 0.4% in the last month.

More information, including an up-to-date valuation of the property can be bought for £19.95, and as Hometrack is the biggest supplier of automated valuations to UK lenders, you should get a good idea of what the property is worth.

This information could be invaluable when it comes to making an offer. But, as with any negotiation, it all depends on how much you want a property and how much the seller needs to sell.

For example, I'm in no rush to buy so am in a good position to make cheeky offers. I wouldn't consider making an initial offer anything less that 15% below asking price. maybe more. And if that means I am exploiting a falling market then so be it. A seller can always say no.

Ultimately, what you offer and what is accepted is a combination of both your needs and the seller's, but being armed with information, like that from RICS or Hometrack, can only help.

After the offer

Say you make an offer on a £200,000 property for £190,000 and that offer is accepted. Your seller is in a chain and is holding up the sale, possibly through no fault of their own. In the meantime average property prices in your area are falling, perhaps significantly.

Are you justified in gazundering, where you tell the seller further down the line that you are reducing the offer they initially accepted? They may have declined other offers or taken the property off the market and have no choice but to accept your lower offer in order to stop their chain collapsing.

According to a recent Fool.co.uk survey of 1,240 people, 58% of Fools think gazundering is unethical yet, if pushed, 94% would still force the price of a house down at the last minute.

I believe that as a buyer you are justified in gazundering in some cases. For example, if the survey has uncovered a problem, I think it is only right you should be able to renegotiate the price.

If local property prices have fallen significantly, and you have evidence of this, I also think you are justified in reducing your offer by the same proportion, but only if there has been an unreasonable delay.

These arguments have been debated at length by my Foolish friend and colleague Donna Werbner, and it's clear from the message boards that many people are passionate and the rights and wrongs of gazundering. You can find out more about what Fools think if you watch our brand new On The Money video podcast, too.

At the end of the day, whether or not you agree with the practice of gazundering, it is not illegal - and it is certainly coming back into fashion.

PS. I think the question of whether or not it is ethical is one that can only be answered on a personal basis. I don't think I would be comfortable doing it... but never say never.

> Here at The Fool, we have looked at both sides of the story. So if you're a seller and someone does try to gazunder you, read Stop Buyers From Gazundering You for help on what to do next. Similarly, if you're thinking of gazundering someone, read Capitalise On House Price Falls first to get advice on how to do it.

> Watch our On The Money video podcast!

More: Capitalise On House Price Falls | Stop Buyers From Gazundering You