Have you guys heard of this sort of activities in Manhattan?

`Gazunderers' Thrive as Deals Fail in U.K. Home Slump (Update1)
2008-05-13 03:28 (New York)

(Adds today's RICS report in fifth, 10th paragraphs.)

By Svenja O'Donnell
May 13 (Bloomberg) -- Max Andrews accepted an offer for his London apartment last December that was 16 percent less than his asking price, and then made a bid on another home.
Days before Andrews was scheduled to close, the purchasers said they would only buy at an even lower price, now 25 percent below the 285,000 pounds ($547,000) he'd originally wanted. The bid meant Andrews couldn't afford to move, so both deals collapsed.
``Everything fell through, leaving me stuck up the creek without a paddle,'' said Andrews, a 38-year-old art assessor.
``It was awful.''
Andrews joins the ranks of victims of ``gazunderers'':
buyers who pull out of a purchase or slash the agreed-upon price at the last minute. The practice, which real-estate agents and lawyers say has grown in the last year, is a byproduct of the downturn in the British housing market.
Gazunderers feed on pessimism. The property market in London had the most widespread price drops in at least 14 years last month as banks cut back on lending, the Royal Institution Of Chartered Surveyors said today.
Property transactions in England are binding only when buyers and sellers exchange written contracts. Almost three months pass on average after an offer is made and accepted and before the formal exchange, according to government figures.

Playing the Market

That provides plenty of time for individuals as well as real-estate professionals to play the market long after the original deal is agreed to.
For example, Christian Blavier, a sports-massage therapist who supplements his income by buying and selling property, bid 320,000 pounds to purchase a three-bedroom home in London's Hoxton district. The elderly seller accepted. As property prices slumped, he cut the offer by 30,000 pounds. She refused, and he is looking for another property.
``I've just gazundered a 70-year-old lady who is undergoing a hip replacement,'' said Blavier, 39. ``You can't get a scenario to make you feel more guilty. But this is not my hobby. It's what helps me make a living.''
Today's report from the chartered surveyors' group showed that the number of residential property agents and surveyors saying prices fell in London exceeded those reporting gains by
94 percentage points in April. The reading for the country fell to minus 95.1, the least since the series began in 1978.

Less Lending

U.K. mortgage approvals dropped in March to the lowest level in at least nine years as banks cut lending to cope with the credit-market freeze, the Bank of England said on April 29.
The term gazundering is derived from ``gazumping,'' in which a deal is broken by a new buyer offering a higher price.
Gazumping was widespread as recently as a year ago. London home sales, fueled by financial-industry bonuses, have led a tripling of prices nationwide in the past decade.
With 20,000 jobs losses predicted in the capital's financial center in the next two years, according to the Centre for Economic and Business Research, the city may now bear the brunt in the other direction.
``We're seeing an increasing amount of buyers attempting to renegotiate the original agreed purchase price downwards,''
said Ash Oberoi, a partner at Housing & Property Law Partnership Solicitors in London.

High End

Charles Puxley, an associate director at Jackson-Stops & Staff estate agents in London's Chelsea neighborhood, said gazundering is occurring even with the priciest properties.
In one case, he said, a buyer agreed to pay 2.5 million pounds for an apartment in Westminster, the borough that is home to the Houses of Parliament, and then cut the offer to
2.25 million pounds.
Puxley advised the seller to accept: ``Central London buyers aren't stupid. Sentiment is getting slowly worse.''
Bank of England policy maker David Blanchflower, who supports a cut in the bank's main interest rate, said on April
29 that house prices may drop by one-third in the next three years.
``People expect the market to fall further,'' said Peter Rollings, managing director of London estate agents Marsh & Parsons. ``There is a lot of gazundering going on.''
The Firsthomebuyer.co.uk Web site, which according to its home page was set up by ``three young couples buying our first homes,'' urges people to gazunder -- and provides a step-by- step guide on how to do so.
``Gazundering is Good,'' says the site. ``Sellers regularly ask for higher prices, so why shouldn't buyers exploit the market too?'' The site doesn't provide contact information for its owners.
Blavier, who gazundered on the Hoxton property, said he would never have gotten away with the tactic a couple of years ago.
``When I bought my first property in 2005, they would have laughed in my face if I tried,'' he said. ``Now, vendors are beginning to expect it.''

*T
For related news:
U.K. house-price index: UKNBANYY GP U.K. consumer confidence index: UKCCI GP *T

I don't know much about the UK market, but this article makes it sound like they don't use purchase agreements as an interim step between making/accepting offers and actually completing the transaction. In New York, you enter into a contract fairly early in the process, so if you were to try something like this you'd put your deposit at risk, and perhaps also end up on the hook for any additional damages you caused the seller.

I'd legelly exercise the contract provision, take the ten percent deposit, close that deal, and go right back again to selling my place like nothing ever happened, richer for the experience. If the party came back after that and said "Oh, it's cool, we'll just go forward with the deal," I'd say to them "Oh now the price is 25% HIGHER than you offered, nit-wit."

Malraux, very clever, but in NYC a "gazunder" would most likely happen when the contract is out but not yet signed, so the buyer really risks nothing other than not getting the apartment.

I have used this tactic myself and I highly encourange buyers to try it. Once a seller accepts a bid they become very comfortable with the notion that their place is "sold." As such, they enter a highly vulnerable emotional space that a buyer can exploit. When you receive the contract for review, all you need to do is find something - anything - wrong with it and then use it as leverage on the price. Or, you can talk up recently sold (cheaper) comparable in the building or neighborhood and use that as leverage. In this kind of market, the seller doesn't hold a lot of cards and will probably make a price concession.

You can also Google the seller, once you have the contract and know his/her name (assuming you hadn't found it out already). Perhaps his office just issued a press release announcing his new assignment in CA, starting in a month.

It seems like just yesterday that I was reading about all of the Gazumpers in London. I thought it was a really ugly tactic, but I guess the buyers have turned the tables...

Wait I have a question perhaps someone can answer. Aren't these the same people who were buying all our condos over the last several years. And if they are how are they going to afford to keep their summer homes in Manhattan?

Won't inventory increase here in Manhattan because of this situation?

I wonder if this is happening on PRIME London locations. There are many prime London locations SO PRIME that you can only buy a 100 year lease on them. The Realtor arguments holding up Prime London are very similar to the ones holding up Manhattan.

bugelrex, most of london is sold on leasehold, ie 100 leases. it is pretty common and not limited to prime properties. it is not very common to find a freehold property in the london city. prime or not they are few and far between.

Okay, for the massively uninformed on this website (about this and so much else), under British law (not sure about Scottish) agreements to purchase real estate are not binding. In the heady times the opposite of "gazundering" - called "gazumping" - occurred, where sellers would walk away from the deal if they got a higher mortgage.

You can do that in the US, but you would lose your deposit.

eastcider:

"...I have used this tactic myself and I highly encourange buyers to try it. Once a seller accepts a bid they become very comfortable with the notion that their place is "sold."..."

On the contrary - until the offer is signed by both parties and proof of receipt is given by both lawyers, any reasonably smart buyer would continue to show their place and say the place is available. In addition, all reasonable pressure should be put on the purchasing party to review board minutes, building financials, etc., in a very efficient manner. If they can't complete what they need to do and have a signed, sealed, and fully executed contractual offer within 3-5 days of the accepted verbal offer, they're toast as far as I'm concerned, unless there is some kind of mitigating issue.

You NEVER become comfortable until the cotract is fully executed and the deposit check is in the bank. You assume your place is on the market until the very last moment.

As far as the post-accepted offer bargaining issue, if you can't trust someone to stand by their initial word, they're just going to keep try and screwing you repeatedly. If someone pulled taht crap with me, my response would be "executed contract with a check for the full amount on my lawyers desk in 24 hours, or I go to the next offer." If I HAVE to concede on the asking price, I'd rather do it up front and squarely with the next person in line as opposed to the feeling of someone trying to purposely screw with me.

steve- Will this effect Manhattan or Not and how?

This is a usual aspect of the London market. A side-effect of their archaic contract system which basically is built around trust but legally allows either side of the transaction to walk away from the deal up until the last minute. It's just a very different system. It's also quite usual to renegotiate the price based on the outcome of the survey, valuation etc..etc.. I don't see the London market having much correlation with the NY market. UK prices are at a significant premium in terms of standard affordability metrics such as average price / average income.

"higher mortgagej" = higher offer.

smallmj is right - our contracts are binding, and in theory if a contract is broken you can try to force compliance, but most people just prefer to keep the deposit, because it's faster. You could in theory also sue to recover any amount you receive under the originally-agreed price, but most people don't bother.

The contrast between east_cider's and malraux's points is interesting. I can certainly see how an experienced investor with deep pockets can afford to say "Fuck it. You're not worth the aggravation." I have a friend who owns a software company and has done very well, who's walked away from deals when the other party has pissed him off. It's cost him money, but he doesn't care; he has plenty.

On the other hand, when I had the contract on the the place I've talked about almost buying in December, it was easy to find out that the seller, who was carrying two properties, was long gone and did not earn a lot of money. I had already negotiated him down 17%, but knowing his situation would have given me confidence to negotiate down further to compensate for issues I discovered with the unit, had they not been bad enough to chase me off. I was right about him wanting to be done with it; it was in contract a short time after I pulled out and sold for $5k less than my offer.