Selling a house by tender can foster buyer competition but it’s important to understand exactly what a tender process involves for both buyers and sellers, what the pros and cons are and whether it’s a good fit for you, your location and property type.
Real estate tenders have become popular and are often the selling method of choice in many parts of New Zealand. It is often referred to as ‘no price marketing’.
Tenders can be a good choice if your property has unique features that make it difficult to price, or you don’t want to reveal your expected price.
Find out more about selling different property types
TENDER SUCCESS RELIES ON AGENT COMPETENCE
The success of a tender sale is heavily reliant on your choice of real estate agent, their ability to guide buyers through the tender process and how they manage and communicate responses to questions around ‘what price should I offer’.
It is not uncommon for tenderers to ask your real estate agent ‘what will get it across the line’ and base their offers on the response from the real estate agent who is actually working for you, not them.
Real estate tenders can force buyers to put forward their best price from the outset (often due to FOMO) if they want to win the tender which usually produces a good end result for the seller. However, it can also attract disappointing offers and go the other way.
Real estate agents may work with several buyers to help them submit tenders. This needs to be handled skillfully, keeping prospective buyers engaged until the deadline.
If the seller wants to negotiate with a buyer, it is important to have a real estate agent who is a confident negotiator, especially important for luxury homes where millions of dollars can be at stake.
For this reason, it is important to choose a suitably competent real estate agent first, then together decide on the most effective method of sale.
Request a shortlist of vetted real estate agents to compare first.
Definition of a real estate tender
When a house is being sold by tender, prospective buyers submit written offers before a deadline date and time and the tenders are opened after that.
Tenders are like an auction without the public auction day, and with the important exception that buyers don’t know what others are bidding.
Unlike auctions, tenders can include conditions of sale.
The vendor selects the tender they want to accept, not necessarily the highest offer as another bid might have more attractive conditions and a better settlement date.
Listing a property for sale by tender
Whether or not to sell your house by tender is something you can discuss with your real estate agent, (real estate agents are obliged to explain all methods of sale available to you).
Once the marketing process is underway, the agent may then work with several buyers to help them submit tenders, so you are heavily reliant on their competence to conduct this to your advantage.
Managing tender offers
- PRICING: Properties can be marketed for tender with a guideline for buyer budgets or no price guideline at all.
- ETHICS: Agents can help buyers through the tender process but should not give them information about what the other bidders are putting forward
- BUYER ENGAGEMENT: Real estate agents need to have the work ethic and communication skills to keep buyers engaged.
- OFFERS TO BUY: Tenderers are encouraged to put their best offer forward but the seller is not obliged to accept any offer.
- TENDER DOCUMENTS: The tender documents set out the conditions of the tender process, including variations such as whether the tenders can be opened prior to the deadline. Tenderers make their offer, list their conditions and sign the document before submitting.
- NEGOTIATION: If the seller doesn’t accept any of the tenders, the real estate agent and seller can then begin the process of negotiating with the prospective buyers. This may take some time but it gives both buyer and seller time to work through issues of price and conditions.
Tender timeframes and extensions
- SUBMITTING OFFERS: Prospective buyers can submit at any time up to the deadline.
- OPENING TENDERS: Tenders are opened after the advertised deadline.
- OPENING TENDERS EARLY: This can be done to check the documents have correct and necessary information but it must be stated upfront in the tender document.
- CONSIDERING OFFERS: The seller has five working days to consider the tenders after the deadline during which time the buyer cannot withdraw their offer.
- SELLING BEFORE DEADLINE: A property can be sold before the deadline but only if it has been stated in the tender documents and advertising material that this is an option.
- DEADLINE EXTENSION: The vendor can extend the deadline, an option that should be stated in the tender document.
Most home buyers are not overly familiar with the tender process which underlines the importance of comparing suitably competent real estate agents at the outset.
The Tender Process and costs
The tender process does not incur additional charges from the real estate agency but you should discuss your tender with your lawyer which will mean a conveyancing cost quoted or charged by the hour.
What’s involved in the tender process
- Marketing: Once you have engaged a real estate agent and the property marketing campaign has started, you hold a series of open home days with the help of your agent.
- No reserve: There is no reserve price, however sellers are under no obligation to accept an offer.
- Buyers submit tenders: Once the tender documents have been filled out and signed by the buyer with their offer and any conditions they seek, this legally binding agreement (should the seller choose to sign it) is submitted confidentially in a sealed envelope and deposited in a tender box at the real estate agency or your lawyer by the deadline.
- Buyer deposit: Prospective buyers can provide a deposit with their offer (returned if the bid is unsuccessful), usually 10 per cent of the purchase price, to make it more attractive.
- Tender opening: Tenders are opened in the company of the agency or your lawyer after the deadline has passed.
- Negotiation: You can choose to negotiate with one or more of the tenderers via your real estate agent but it is up to the prospective buyer whether they wish to engage in negotiation.
- Offer acceptance: Once you accept an offer, you sign the tender document that has already been signed by the buyer but consult with your lawyer first.
- Meeting conditions: You, your lawyer and your real estate agent take care of your chosen buyer’s conditions and deadlines, if any.
- The sale goes unconditional: Successful and unsuccessful parties are notified.
Find out about real estate commission and fees when selling a house.
PROS of a real estate tender
Buyer competition: The tender process promotes buyer competition which tends to drive up the price.
Buyers set the value: By marketing the house without a price you avoid the problem of setting a price too high or too low and have the opportunity for a keen buyer to demonstrate their desire for the property. You don’t have to accept offers that are too low.
Top offers: Buyers, at the disadvantage of not knowing what competing buyers will bid, will likely pull out all the stops in order to win the tender.
Favours the seller: In a rising market especially, the tender process favours the vendor with surprising prices being achieved.
Minimised conditions: Buyers may be motivated to make their offer condition free or minimise conditions to make their offer more attractive.
Increased enquiries: Tenders create curiosity so can increase the number of enquiries and home inspections.
Unusual features: This method of sale may suit your property best if it has unusual features that are hard to determine the value of in the eyes of individual buyers.
Multiple vendor situation: Tenders suit properties where several people must be consulted such as Trusts and deceased estates.
Private: It is a more private way to sell your property than auctions or listing the sale price.
Short timeframe: Tender sales allow for a quick, limited sales timeframe prompting buyers to act with urgency.
Deadline certainty: The compact timeframe means the marketing process including the need for open homes will be over and done with by the deadline.
More control: Homeowners have more control over the process and can seek more flexible terms and conditions, for instance a property vacation date that suits them.
CONS of a real estate tender
• No auction fever: You won’t have the frenzied competition pushing up bidding you can get at a live real estate auction.
• Money committed: Marketing may be more expensive to attract as many buyers as possible within a short time. This means you may feel more pressure to accept an offer because you have already invested money.
• The buyer net: Because the marketing time is shorter fewer people may be made aware of the property.
• Less impulse buying: Buyers have more time to do research including visiting your property more often or visiting other homes competing with yours and could lose interest. They don’t have to put in their tender until just before the deadline, whereas when homes are being sold by some other methods, they are under pressure to act quickly if they want to beat the competition.
• Best method: Buyers are still under pressure to put in a good offer in other methods of sale which may be better suited to you depending on your circumstances.
• Price variation: While buyers don’t know the value of tenders submitted by their competition, they will usually still be clued up to the property’s probable market value so offers might not vary widely.
• Open homes: You will probably need to do open homes which not everyone likes the idea of. Tenants in rental properties can refuse an open home.
• Intense process: Doing several open homes over a limited period can make the sales process more intense.
• Risk: While the tender method of sale tends to drive up prices, it is possible for the opposite to happen.
• Drawn out negotiation: If the seller decides to negotiate with a buyer, the process can draw out.
Real estate agent tender sale responsibilities
The process of selling a house by tender is not defined in legislation. Instead the process is set out in the tender document, including any variations from standard practice.
Legal and other obligations are similar to those in other methods of sale, including:
- You and your agent are legally obliged to disclose issues such as if there are leaky building problems or structural issues and all other relevant information.
- Tenders cannot be opened or the property sold before the deadline unless this has been stated in advertising and in the tender documents.
- The tender document can set out changes to the process such as that offers can be considered before deadline, the deadline can be extended and tenders can be opened before the deadline to check the document has correct and necessary information.
- When tenders are submitted they must be kept in a safe place until opened and copies of all offers must be kept for 12 months.
- The tender contract must state if a property is to be sold with tenants in place.
- If a Trust is involved all Trustees need to sign.
- Selling a house by tender is a legal process just like any other method of property sale and you should have the assistance of a property lawyer or conveyancer.
There can be problems if the documents are not water-tight so legal advice is advisable.
Real Estate Code of Conduct
When selling a house by tender, real estate agents are subject to the overarching Code of Conduct that governs their profession.
In the case of tenders, agents:
- Shouldn’t share tender details of competing buyers with anyone other than the vendor.
- Are obliged to tell you if there is a conflict of interest, for instance someone close to them is putting in a tender. This should be made in writing.
- Must explain in writing how your property will be marketed and how much it will cost.
- Should discuss with the vendor the pros and cons of accepting offers early or extending the deadline and notify interested buyers if the deadline is extended.
- Should advise buyers about the five working days post deadline in which offers cannot be withdrawn.
- Should check the tender documents, once opened, meet the seller’s requirements and are filled out correctly, with necessary signatures and the buyer deposit.
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Article created June 22 | About