March 22, 2016
Submitting tenders to purchase property
A tender (or expression of interest) is the process of purchasing property through a confidential written offer; much like a silent auction. A property is put on the market, where there may or may not be a guide price and all offers are presented to the vendor for consideration.
It's a sales method that can be utilized when surrounding or similar properties aren’t so easy to appraise, either by the vendor or the real estate agent. Another instance where it may be used is when the question is not what it is worth, but what are people willing to pay for it? This is helpful for ‘unique’ properties that don’t fit the typical market mould.
As you can imagine, it’s rather an effective means for the sale of a high-value property where there is legitimate uncertainty surrounding the purchase price.
Advantages of going to tender include:
- Tenders tend to attract only genuine buyers
- No ceiling price which means the sky is the limit
- Confidentiality – tenders submitted are purely confidential. The sale price and the name of the purchaser are not usually disclosed publicly.
- Creates a sense of urgency as they have a cut-off date; the seller can make a quick sale by a particular deadline without having to drop their expected purchase price
- Flexibility of terms and conditions of the sale – the vendor is able to set beneficial terms e.g. “settlement period not to exceed 6 months”. The buyer can also include incentives that may or may not be in their favour e.g. “subject to a building approval certificate”
- Tender submissions could be limited to purchasers who put down a refundable cash deposit (as a sign of good faith)
- They can assist with the negotiation process if you submit a tender which is considered somewhat favourable by the vendor
- Only one interested party is required, whereas an auction requires at least two bidders to ‘drive up the price’ which can protect potential buyers from overspending
- Less pressure felt by the vendor as they have time to consider the submissions (at auction it’s more of an immediate decision)
- First off, it can be risky. It pays to recruit an experienced real estate agent to partner with.
- It creates uncertainty; the confidential nature can increase the bidding amount as buyers are unaware of what others have offered. However, the reverse is also true where you’re left with lower bids than the expected sale price because people have little idea of the true market value.
- Negotiation with buyers after receiving unsatisfactory submissions can be a very long and drawn out process.
- High marketing costs may be incurred due to the intense advertising campaigns that are required to make buyers aware of the expiry date.
- Shorter advertising campaigns means fewer buyers are exposed to the purchasing opportunity.
- The vendor is not obliged to accept any of the tenders. They might disregard the tenders and put the property up for sale using a more traditional method