COVID-19 impacts for Real Estate Agents – can’t sell your property through an auction? Why not use tenders?
As a result of the COVID-19 pandemic, auctions and open house inspections will cease from midnight Wednesday, 25 March 2020.
Auction is not the only method you can use to achieve the highest price. Another option is a tender process, namely, a silent auction.
A tender process involves the receipt of offers from bidders by a specified time frame in a sealed envelope – and the highest price wins if it is over the reserve price. The reserve price can be disclosed or undisclosed. Essentially, an agent that runs a tender process is looking to get the buyer’s best offer, straight off the bat. Unlike auctions, each bidder’s bid is kept secret from other buyers. Vendors are not allowed to accept any offer before the tender closing time (deadline).
A tender process can actually result in a higher bid price than an auction. An auction process is open, and theoretically you never know how much more the winning bidder really has up their sleeve, as they will only usually bid marginally above the next highest bidder. I have seen numerous tender processes where the highest bidder bids far in excess of any other bidder, and had not known that, had they bid significantly less, they still would have succeeded in purchasing the property.
Tender processes can allow:
- bidders to make conditional offers, e.g. Subject to changes to the contract or a building approval certificate for example;
- for bidders to submit signed contracts and the deposit with their bids as an irrevocable offer capable acceptance, just as though the parties were at an auction at the time of the fall of the hammer.
After the closing date, the vendor and their real estate agent will choose the winning tender. They can accept the signed contract and exchange or enter into further negotiations with the most favourable offer, whilst that bidder knows that there are likely a number of other contracts capable of acceptance in the background.
Some advantages to the tender process also are:
- there is a certain deadline for the vendor, so the sales and marketing process does not last forever;
- the sale price is kept secret;
- the vendor retains control over the process; and,
- tenders only require one interested party to be successful, whereas an auction generally requires 2 bidders or more to be successful.
Of course, there are also some downsides, however given the difficulties with running auctions in this climate, there could be more of an upside than previously considered. In order to maximise the bid price, it is important that potential bidders are ensured that the process is fair. Confidence in a fair process will lead to more competition and a greater likelihood of a better price.
At Coleman Greig we have many years of experience in running successful tender processes for government and the private sector. If you are an agent and require assistance in running a fair and simple tender process, please do not hesitate to get in touch with a member of Coleman Greig’s Conveyancing team, who would be more than happy to assist you today.