Selling by tender – pitfalls

As Australia’s auction clearance rates made a dramatic fall in the past 12 months, several real estate agents are going after the tender process. As auctions lose their appeal through low competition and are property reputation is stained with the thoughts of being not marketable, agents opt for the tender process as it only needs one buyer not to mention that the agent still gets paid for selling and advertising.

Rob Miller of Domain Property Advocates shares his view in his blog about the tender process. According to Miller, the tender process from a buyer’s perspective is “like a secret maze, it’s a nightmare.” The reason behind why he thinks of tenders this way is the fact with how most people connect tenders with “government bodies or business organisations who require specific goods and services.” People believe that all tenders have conditions and special terms and that with tenders, the lowest quote is always successful. In the world of real estate however, the highest or the best tender doesn’t matter as there is always an estimated reserve price. Sometimes, when the reserve price has not been disclosed, the agent needs to give out what the estimated selling price is so as to comply with legal guidelines. The problem then lies when the agent’s assessment doesn’t meet with the vendor’s expectations.

The problem with the tender process is the lack of transparency. Tenders are confidential having sealed bids, security measures, locked boxes, closing dates, etc. and the agent is the only one telling the buyer the estimated price. The buyer will never know if what was given is accurate or if it is within the reserve price or if the agent has other interests to the property. It is the confidentiality behind the tender that affects the credibility of the tender process.

Auctions are more reliable as buyers can see who they’re bidding against. These are the reasons why successful tenders tend to be the bid significantly higher than the others. Buyers could lose as much as $100,000 on the fear of not getting the property only to find out in the end that they were played or was the only one who submitted an offer.

It is what happens after the tender process has closed that is most disturbing. What happens to those who bid within the reserve price? What if there’s a highest bidder, does the agent pick him directly and talk to him or does the agent ask everyone else to do another submission of bids making the highest priced bid as basis? These scenarios are likely to happen in a tender process which is a nightmare to buyers.

The difference from a tender process for commercial intents and real estate sale is that the commercial depends on a fairly simplistic commercial outcome while the other is controlled by strict statutory guidelines where the duty of the agent to take care of his buyer is severely compromised by the tender process’ confidential nature. The best thing to do is to conduct business with reliable agents, the ones who will put your needs before their own.

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