Understand the tender process
Belinda Moffat, of the Real Estate Authority, clarifies some points around tenders when buying and selling a house.
QHi Belinda. We recently bought a house by tender. After the tender deadline, the vendor’s agent told us that to secure the property we would need to increase our initial offer, which we did. But we’ve since found out that we were already the highest offer. Did we get tricked into paying more than we needed to?
ABuying a house is a significant commitment, financially and emotionally. Now that the process is done you may be reflecting on whether you paid the right price. I can appreciate your concern, but from what you’ve described I don’t think you have been tricked.
Rather, it appears that the vendor, who the agent was acting for, will have had a clear price expectation that needed to be met for the sale to proceed.
Some of the fundamental standards of professional conduct for licensed real estate professionals (licensees) are relevant here. These standards are laid out in the Code of Conduct we oversee at REA.
A licensee has a ‘‘fiduciary obligation’’ to their client. In your case and in most property sales in New Zealand, the client is the vendor. This means the vendor has contracted the services of the licensee to sell their property on their behalf.
The licensee must act in the vendor’s best interests in the sales process and must follow their client’s instructions. The exception is if a client instructs them to do something that would be unlawful or conflict with the Code of Conduct.
When a property is for sale by tender, if the vendor is not satisfied with any of the offers put forward by the deadline, they may instruct the licensee to negotiate with one or more of the potential buyers to see if they can secure a better offer.
Similarly, the licensee is entitled to advise their client if they think a buyer would be willing to pay more, and with their agreement, try to negotiate a higher offer.
When they then approach you as the prospective buyer to negotiate, they are still obliged to ‘‘act in good faith and deal fairly’’ with you. So, if their client has indicated a sale price that they would accept, they are allowed to suggest to you that an offer above a certain figure should be successful.
They would be at risk of breaching their conduct obligations if they were knowingly giving you false or misleading information, such as telling you there is a competing offer at a certain price when no such offer exists. This did not occur in the situation you have described.
In a tender situation, the licensee might even propose specific amendments from their client, to your written offer, potentially involving the price, conditions or both, which if you agree to will mean the offer is accepted. Check any changes with your lawyer or conveyancer before agreeing to them.
Finally, remember that with a tender, the vendor is under no obligation to accept any of the offers, even the highest.
When a property is being sold by tender, it makes sense to put your best bid forward, because you may not get another chance. But post-deadline negotiations are allowed, so it’s important to know what you can expect from the vendor and the licensee, to enable you to participate in the process with confidence.
Belinda Moffat is the Chief Executive of the Real Estate Authority. For more information about the process of buying or selling property, and what to expect when working with a real estate professional, visit settled.govt.nz.
Have a question for Belinda? Email homed@stuff.co.nz.