AUCTION - TENDER OR DEADLINE. . . How do you choose?
The method of sale for a property, has always been a talking point between an agent and their clients or potential buyer. The various methods of sale vary and it is worth considering what is the most suitable method in each property scenario.
Lets start with auction.
Auction is a structured process. All houses can be auctioned but not every seller is comfortable with this method. There are pros and cons. Selling by auction is an open and transparent process for purchasers and sellers alike. In the auction room buyers can see their competition and get an accurate picture of how much that property is worth by seeing first-hand what others are willing to bid to secure it. The auction terms & conditions document is approved by the vendor’s solicitor and available to all parties from the start of the marketing campaign. Prior to the start of the auction the vendor sets a reserve price which is confidential to the Auctioneer. Once this reserve price is met, the property is sold to the highest bidder. Often a property will sell above the reserve price but the final bid is dependant upon competition in the room. Properties that do not sell on auction day can be negotiated after the auction and still result in a successful sale. Properties sold by auction are unconditional, meaning the purchaser must ensure they have carried out all due diligence (e.g. finance approval, builders report, LIM Report etc.) to ensure they are confident of the property’s merits before a bid is offered. Buyers may shy away from this process but it is the most transparent way to buy a property.
The tender process
is where the buyers submit written offers by a set date. They therefore have time to do due diligence in the weeks leading up to the tender date to ensure they are well informed and can make ‘clean’ offer (unconditional) or include conditions if required. Like an auction a tender document is approved by the vendor’s solicitor and is available at the beginning of the campaign. Both ‘closed tender’ method and an ‘open tender’ method of sale can be used. In an open tender, offers can be made and accepted prior to the tender closing date. With a closed tender offers will not be considered prior to the published closing date. A significant difference between auction and tender is that there is no reserve price at tender and the process allows the vendors five working days to decide which offer to accept. They can also ask an offeree to change/amend some conditions and or the price to determine the best result for them. This process is often used for unique properties that have no/few recent comparables when it may be hard to accurately determine a fair market price – for example, a unique piece of land that is subvisible or a historical family manor.
Another method of sale is the deadline sale. This is a less formal method.
Offers can be accepted prior to the published closing date if the marketing states ‘if not sold prior’ or, if marketing shows ‘no offers prior’ to the specified date then the full marketing period is used to encourage all potential buyers. Offers for a deadline sale are made on the standard Sale and Purchase Agreement, the document that is used nationwide for transacting the sale of residential property.
Fixed price
is a method not as commonly used in the current market due to property values changing so rapidly. As this method limits the potential sale price for a property it is not a recommended method of sale for those wanting to maximise their property’s value. This method allows the vendor and the purchaser to negotiate through their real estate agent in an effort to reach mutual agreement of a sale price.
All methods of sale work, some markets or certain properties respond better to different methods – for example we know the Auckland market has a massive auction culture. It is best to discuss with your agent the different methods you could consider and how they would work in the current market and for your particular home. For buyers considering bidding at auction, remember it is a transparent sale – you can see your competition and where they assess the property’s value. You know you will not overpay for a property because your competition was willing to bid against you right up until the final bid.
For all methods of sale astute buyers should try and do all the due diligence possible prior to bidding at auction or having their offer presented to the vendor. This gives them the best chance to secure a property and peace of mind that they are making a good decision. Buyers should talk to their bank/mortgage broker and get a finance pre-approved and get their ducks in a row. They should talk to the agent about a settlement date that might suit the owners, seek independent advice, a builder’s report and have a lawyer check the certificate of title. Recently, agents are commonly seeing purchasers writing a letter introducing themselves and perhaps enclosing a photograph of their family. This creates empathy with the vendor and when buyers are competing to buy (in a multiple offers situation for example) it can positively influence an outcome.
As a seller our best advice is to engage the method of sale that you are comfortable with and best suits your home and circumstances. Make sure you make an informed decision together with your agent, because it could make all the difference in the sale price.