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Different methods of selling real estate

Part 2: Selling your property by tender

How a Sale by Tender works

A tender is essentially a type of closed silent auction. When selling a home by tender, the seller will accept tenders from prospective buyers, and then consider these various offers at a pre-specified date. The offers are presented in sealed envelopes, which are kept secret from other buyers. This means that prospective buyers will remain unaware of what prices competitors are submitting. Before this process begins, the home is first marketed to prospective buyers at inspections. Interested parties can attend these inspections before submitting a written tender by the specified due date.
Buyers have a few bargaining tools on their side. For example, they can make a conditional offer, such as making their purchase subject to a building approval certificate. On the other hand, an offer can be made totally unconditional. These terms and conditions are included by the seller’s solicitor in an official tender document. Sellers are not allowed to accept any offer before the pre-specified deadline has been reached.
After the closing date, the seller and their real estate agent will go through all of the tenders that have been submitted. With their agent’s advice, the seller can choose the tender that’s most favourable. This may be dependent on the highest price that has been offered, but it could also depend on the terms and conditions of each conditional tender. There’s no obligation to choose one of the tenders that has been submitted. If none of them are found to be acceptable, the real estate agent can go back to the potential buyers to see if any of them will be willing to change their conditions or offer a higher price.
Although selling by tender has gained popularity in recent years, this practice is nothing new. It has been used for centuries as a way to sell a property. One of the reasons it has become more prominent recently is that it helps sellers make a quick sale by a certain deadline, without drastically dropping their price to do so.

Advantages of Selling by Tender

  • Because there is no listed selling price, buyers cannot compare your home to others on the market. The sale price of the home is usually kept secret, so there won’t be any complaints about an overpriced home.
  • With all bids kept fully confidential, potential buyers cannot base their offer on what others are bidding. This can lead to the winning tender being significantly higher in price than other offers. The amount of the tenders may far exceed seller expectations.
  • The seller retains control over the selling process. They don’t have to accept the highest tender if they don’t want to, but knowing this figure can also open up the doors to future negotiations.
  • Sales and marketing efforts can be optimised with an intense campaign. This puts the home directly on buyers’ radar, to make them aware of the home’s existence before the closing date. This closing date also means that sales and marketing campaigns don’t last for long periods of time, which saves both time and money.
  • For sellers who don’t have a clear idea of what the property is worth, this tender bidding process can help indicate a true market value. This is useful for unique properties that don’t fit into the market in a neat compartment.
  • If there are several bidders who are interested in the property, the competitive nature of the tender situation can cause them to bid higher than they normally would. Because they can’t see one another’s bids, it helps drive up the price. Yet the seller still has the right to reject the highest offer if they so choose.
  • The seller has control over how much money is spent on the marketing campaign, by limiting the amount of time that the tender sale is to be advertised.
  • Unlike other sales, all tender transactions are completed in cash. This makes tenders different from auctions, which rule out buyers who don’t already meet lender criteria for pre-approval. This opens up the doors to a wider selection of potential buyers.
  • Another advantage that a tender has over an auction is that it only requires one interested party, whereas an auction requires at least two bidders to drive up the price. Sellers also tend to feel less pressure when they are selling by tender, because they don’t need to make immediate decisions like they would in an auction.
  • A tender process tends to lead to higher bid prices than auctions, because in an auction the highest bidder will stop bidding once the weaker bidder quits. In a tender sale, there is no point when this can happen. The highest bidder will have to throw out the highest price they’re willing to pay, because they don’t know what others are bidding.
  • There is no ceiling price that can be put on a sale by tender, meaning that the sky’s the limit when it comes to the potential price of a property. This gives it an advantage over auctions in many ways, which is why your real estate agent may recommend choosing this option.

Disadvantages of Selling by Tender

  • The confidentiality provided by this selling process can drive up bids, since the buyers are unaware of what their competitors have offered. However, this can also backfire and lead to lower bids than the expected sale price, because buyers will have no idea of the true market value.
  • If the tenders submitted are unsatisfactory, it’s possible to negotiate with the interested buyers. This can be a long and drawn-out process, taking a longer time than the seller initially hoped for.
  • Because an intense advertising campaign is necessary to make buyers aware of the closing date, marketing costs can be high in a tender sale.

These are just a few of the potential downsides to consider when you are deciding whether or not to sell your property by tender. It’s best to weigh the pros and cons carefully and have a discussion with your real estate agent to determine if this sales strategy is right for you.

Next month: part 3 (final) covers the pros and cons of selling your property by private sale.

The Practice Financial Solutions holds an Australian Credit Licence (ACL # 388041) and is governed by ASIC.  We are accredited with over 30 lenders which means we’re unbiased – so we find the loan that’s right for you. Contact us on (03) 8888 4000 or loanupdates@thepractice.com.au.

Written by:

Ian Smith