As the New Zealand property market has changed people are looking at alternative ways to buy and sell properties. Offering flexibility and more consideration, here’s what you need to know about the tender process
A few years ago nearly all the properties listed in prime New Zealand markets were sold by the auction process. As the market has slowed and in some areas cooled, auction clearance rates have been eroded and vendors are increasingly looking at alternative ways to sell their properties.
Sales by negotiation, or with a listed indication of vendor price expectation, are becoming more popular. Most people are familiar with the ins and outs of these sales methods but are not so acquainted with the tender process which is also appearing more regularly in real estate listings.
Selling a property by tender is particularly effective for properties that have unique features that may make it hard to judge their worth, or what people are prepared to pay for them. They also offer buyers more flexibility and are a more considered process than auctions. Here are a few factors that you need to be aware of when selling or buying by tender.
1. Vendor and buyer transparency
Real estate agents will often stress that the plus-side of the auction process is its transparency. Buyers are aware of how many people are bidding and what they are offering. Although they don’t usually know what the reserve is at the start of the auction, they do know when it has been reached and their bid has a chance of winning.
Conversely, tender buyers are essentially flying blind. Offers are confidential, made in writing, sealed in an envelope, and opened at the specified date. This works very well for a vendor if a property is a rare find in the market, or has characteristics that are unique and difficult to put a monetary value on.
Buyers who sense there is keen interest and competition may be tempted to make a tender at the top of their range, without knowing what other offers are on the table.
But buyers need to be aware that the vendor does not need to accept an offer at the end of the tender process if none meet their expectations, or they may decide to accept a lower offer that has other conditions that make the sale attractive to them.
2. Flexibility on offers
Tenders can offer great flexibility for both the vendor and the buyer. The vendor can operate within a broad price range, has a chance to review all the offers in a considered way and take into account variables such as settlement dates and other conditions of sale that may be part of various tenders.
Similarly, buyers get a lot more room to manoeuvre than at an auction. The tender can include provisos, such as subject to finance approval, receiving a full building report, or selling your home first.
Make sure you are aware of details stated in the call for tenders that affect conditions of the sale such as length of settlement, what chattels are provided, etc, just like any other house sale. However, the beauty of this process is that there is some wiggle room for you to tailor your offer to your own circumstances when you lodge your tender.
3. The decision making process
The tender process does not rely on on-the-spot decision making that is required at an auction. Buyers can decide what is their top dollar in a considered way, without the pressure of competitors ramping up the bidding at auction, resulting in a stressful situation which may see you overstep your original budget.
Similarly, vendors have a chance to mull over all offers, and there’s no chance of having to review your reserve mid-auction to ensure bidding progresses towards a sale. Vendors have a five-day window in which to review all offers during which time they cannot be withdrawn.
If the vendor decides not to accept any of the tenders, the real estate agent will then begin the process of further negotiations with prospective buyers. This may take some time as there may be many variables for the vendor to consider but it does give both parties the opportunity to work through issues on the price, terms and conditions of the sale.
4. The sale deadline
The beauty of the tender process for vendors deciding not to go the auction route is there is a set date of sale. Unlike properties being marketed with a listed price, or by negotiation, this gives incentive for buyers to make a decision within a time limit. It also means that you can have a very focussed marketing strategy and advertising campaign. Similarly, buyers know their offers will be responded to within a specific time frame.
Words by: Sarah Beresford. Photography by: /Bauersyndication.com.au & Getty Images.