WHAT DOES TENDER MEAN IN REAL ESTATE?
By Trish Willis | Member of the Property Institute of NZ (IPAC)
When a house is being sold by tender, prospective buyers submit written offers before a deadline date and time and the vendor usually opens them after the deadline.
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.
What’s involved in the tender process
- Pricing: Properties can be marketed for tender with a guideline for buyer budgets or no price guideline at all.
- No reserve: There is no reserve price, however sellers are under no obligation to accept an offer.
- Marketing: Once the seller has engaged a real estate agent and the property marketing campaign has started, a series of open home days are held.
- 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.
- 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 the seller's lawyer by the deadline.
- Tender ethics: Real estate agents can help buyers through the tender process but cannot give them information about what the other bidders are putting forward.
- 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 real estate agency or seller's lawyer after the deadline has passed.
- 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 prospective buyers. This may take some time but it gives both buyer and seller time to work through issues of price and conditions. It's up to the buyer if they wish to engage in negotiation.
- Offer acceptance: Once the seller accepts an offer, they sign the tender document that has already been signed by the buyer (but should consult with their lawyer first).
- Meeting conditions: The seller meets the buyer’s conditions, and deadlines if any.
- The sale goes unconditional: Successful and unsuccessful parties are notified.
Sale by 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.
Find out more about selling different property types and see our guide to buying a house
All about the tender process for sellers
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 how to sell a house
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
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.
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 as they will help buyers move through the process.
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.
Find out about real estate commission and fees when selling a house
PROS of a real estate sale by tender for sellers
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 for sellers 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.
Find out more about other methods of sale
Sale by tender - real estate agent responsibilities
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.
Wise Up NZ Awarded Most Reputable Property Advice Hub NZ 2021
Page updated March 28, 2023 by Trish Willis | Member of Property Institute of NZ (IPAC)
You might also like:
- What is the cost of real estate commission and fees?
- Best real estate marketing to increase sale price
- Get real estate agent reviews
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
Stay updated
Keep up to date with NZ’s most reputable property advice by adding your details below:
