A:

A gazump refers to the practice of raising the real estate's price from what was already verbally agreed upon. This move is often executed just before the papers are to be signed, which irritates the buyer and complicates the deal. The seller uses competing bids to justify increasing the price and it often motivates the buyer to close on the deal so that the price does not rise any more. Gazumping is not illegal but it is generally considered an unethical practice in real estate.

The seller presumably expects that the buyer is already committed to purchasing the property to the degree that a last-minute gazump will not change the buyer's mind. A common way that a seller will gazump is by emphasizing a competing buyer - or even inventing the second buyer. The seller uses the threat of another interested buyer to push the original buyer into paying a higher price than the original agreement. If the first buyer does not agree to the increased price then the seller may simply dump that buyer and turns to the second buyer. The "gazumper" is thus manipulating price based on the buyer's desire to buy the real estate. A gazump can refer to other forms of cheating, but it is most commonly associated with real estate.

In real estate, a gazunder is the opposite practice in which a buyer will abruptly lower the offered price before the transaction is finalized. A gazunder typically occurs when the potential buyer has reason to suspect that the seller will probably lower the price to induce the buyer. There are a variety of reasons that the seller will lower the price such as time constraints in which the seller needs to finalize the transaction as soon as possible and will therefore accept losing some money or if the real estate market is sliding a seller often seeks to sell as soon as possible despite having to lower the price. The buyer would then gazunder for a lower price by offering a lower price than previously agreed to. This practice, like gazumping, is not illegal but is widely considered unethical.

For more information on buying or selling real estate, check out our article on Investing In Real Estate.

This question was answered by Richard Wilson.

RELATED FAQS
  1. What's the difference between a letter of credit and a bank guarantee?

    Learn how letters of credit and bank guarantees differ, how they are used by banks and companies, and how buyers apply to ... Read Answer >>
  2. What are the Differences Between Ex Works (EXW) and Free On Board (FOB)?

    Ex Works describes the situation where the seller is responsible for having her goods ready at her place of business. Free ... Read Answer >>
  3. What is an assumable mortgage?

    The purchase of a home is a very expensive undertaking and usually requires some form of financing to make the purchase possible. ... Read Answer >>
  4. What is the difference between CIF and FOB?

    Learn about the differences between FOB and CIF international trade agreements and the advantages and disadvantages for sellers ... Read Answer >>
Related Articles
  1. Investing

    Ins And Outs Of Seller-Financed Real Estate Deals

    Seller financing works like this: Instead of a buyer receiving a loan from a bank, the person selling the house lends the buyer the money for the purchase.
  2. Investing

    How To Make Money WIth Real Estate Options

    Buying real estate options is one way to invest in real estate at a lower entry cost.
  3. Investing

    Housing Deals That Fall Through

    Find why buyers back out and what you can do if you're left holding the bag.
  4. Investing

    Playing Hardball When Selling Your Home

    Using these strategies will help you get more cash when selling your house.
  5. Investing

    The Pros and Cons of Owner Financing

    Details on the upside and risks of this type of deal for both the owner and the buyer.
  6. Investing

    Closing A Real Estate Deal In A Down Market

    We provide top tips on how to help sell your home in a rough market.
  7. Managing Wealth

    Rent-To-Own Homes: How The Process Works

    Here's what to watch for when negotiating a contract for a rent-to-own home – and who is a good candidate for this option.
  8. Investing

    5 Reasons Why You Still Need A Real Estate Agent

    Doing the work yourself can save money, but it could end up being more costly than a realtor’s commission in the long run.
  9. Investing

    Contingency Clauses In Home Purchase Contracts

    Here, we introduce widely used contingency clauses in home purchase contracts and how they can benefit both Buyers and Sellers.
RELATED TERMS
  1. Gazump

    The practice of raising the price of a previously agreed-upon ...
  2. Soft Market

    A market that has more potential sellers than buyers. A soft ...
  3. Purchase-Money Mortgage

    A mortgage issued to the borrower by the seller of the home as ...
  4. Conditional Offer

    In general, an agreement between a buyer and a seller that an ...
  5. Simultaneous Closing - SIMO

    A real estate financing strategy in which two simultaneous transactions ...
  6. Owner Financing

    When a property buyer finances the purchase directly through ...
Hot Definitions
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  2. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  3. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  4. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center