What is a tender sale? buying by tender

Auction, tender, by negotiation and deadline – these are 4 different sale processes for buying a house in New Zealand.

A tender sale (often just called ‘tender’) is one of the most flexible sale processes for buying a property in NZ.

That said – is it a good choice for your next investment purchase? Or, should you sell your property by tender?

In this article, you’ll learn what a tender sale is and how investors, home buyers and property sellers can use one to their advantage.

If you have any questions or thoughts, please leave them in the comments section below.

Key points:

• In a tender, buyers make offers and send them up to a deadline

• The bids are generally opened (together) at the same time after the tender deadline has passed

• The vendor (person selling the property) then decides which offer to accept or who to negotiate with

• Tender sales are very similar to deadline sales, but tenders are more rigid.

What is a tender sale?

In a tender process all offers are submitted “blind” before the deadline. Buyers put their offer in a sealed envelope.

The seller (vendor) then opens all the offers the day after the deadline has passed.

That means they can either accept an offer, or decide to start negotiating.

Tenders are beneficial from a seller’s perspective, especially since you don’t have to share a price expectation with buyers.

This can also be beneficial for a seller if your property is a bit more difficult to price accurately (e.g. if there is a particularly unique feature).

Deadline sales vs tender – which is better?

Out of all the property sale options, a tender and a deadline sale are most similar.

In fact, one real estate agent we spoke to said: “A deadline sale is like a deregulated tender”.

Unlike auctions, buyers can make a conditional offer through a tender or deadline sale.

When you buy a property at auction the sale is unconditional. You need to already have your finance in place, and you must have done all your property inspections.

Once the hammer comes down you are legally committed to buying the property. No pulling out now.

But tenders and deadline give buyers (and sellers) more flexibility. You can make an offer subject to getting the money from the bank, or subject to a building inspection. This gives both parties more ability to negotiate conditions.

But there are more rules with a tender sale (compared with a deadline sale).

For instance:

• a tender cannot be sold before the tender date (generally speaking), whereas a deadline sale can.
• A tender offer is “live” for 3 days after the deadline, but a buyer can withdraw a deadline offer at any time

The benefit for sellers is that they can sit down and review all the offers side-by-side at the same time. This allows them to make an informed decision.

Whereas, with a deadline sale offers may come and go before the deadline.

How do I make an offer on a tender sale?

In a tender sale, the property is advertised with no fixed price. Buyers can then put in any offer they like, up until a set deadline.

Then, once this deadline passes, the seller will accept any offer they like (usually the highest), and/or starts negotiating.

There are a few steps involved in the process:

Step #1 – Identify a tender sale

This part’s easy. The property will be listed: For sale by tender, with an advertised deadline.

Now, most of the time this means that a would-be buyer will need to make a written offer before this deadline passes, and at that point offers are considered.

But, it’s important to note that the tender process is not bound by legislation – the rules are set out in the tender document.

What this means is that sometimes the real estate agents will change the conditions.

So in some situations the property could be sold before the deadline. It depends on the wording of the tender document. (Yes, I know, I’ve said properties can’t be sold before the deadline, but hear me out).

If this is ever the case, the property listing and advertising should include a phrase like “unless sold prior”.

Regardless, it’s a good idea prospective buyers ask the real estate agent what the rules of the tender are so they are informed of any unusual rules.

For example, you could ask the real estate agent:

• What happens if someone else makes an offer before the deadline? or

• Are there any circumstances where the closing date or deadline will be changed?

This way, you have the best chance of making an offer.

Step #2 – Do your research

Just as you would any property, you need to learn as much as you can about the property before you make an offer (without taking too much time).

This will include things like:

• Undertaking a registered valuation

• Asking your lawyer to look at the Title

• Undertaking a building inspection

• Asking your lawyer to review the LIM (Land Information Memorandum) i.e. council documents

You’ll also want to check what other similar properties are selling for so you can make an offer based on today’s market.

Step #3 – Get finances in order

It’s a good idea to get your finances sorted before you make an offer.

In some cases you may include a ‘finance’ condition in your offer (so if you can’t get the mortgage together, you can pull out of the contract).

However, the fewer conditions you offer, the more likely your offer is to be accepted (all other things being equal).

Sometimes the bank will want specific details about the property before signing off on a pre-approval – such as a building inspection.

This means you may like to include a ‘building inspection’ clause within your contract, which is more likely to be accepted than a finance condition.

Step #4 – Make your offer

Now’s the step where you submit your offer.

Under many other sales processes you submit your offer on a sale and purchase agreement. Yes, you literally make your offer on a legally binding contract.

With a tender, it’s a bit different. You’ll make your offer by filling in a legally binding tender agreement.

With this, you’ll also attach a 10% deposit. (Don’t worry, the deposit is returned if your offer is not accepted).

As stated earlier, tender offers are live for 3 days (this is the industry standard, but the tender document may have a different day stated).

Since tender offers are all ‘live’ for 3 days, the seller can negotiate with multiple buyers and still be able to accept an original offer.

That does mean that you often can’t put more than one tender offer in at a time (on different properties). Because, what happens if they both accept your offer?

If the seller doesn’t accept your offer right away, the real estate agent may go back and forth between the two of you as the negotiator.

Be warned, the seller may have some conditions for you as well.

Don’t worry, all this will be added into the contract for you. Obviously, get your lawyer to look over any changes – unless the contract already contains a solicitor’s approval clause.

Step #5 – Offer accepted

If the seller accepts your offer, they will countersign the tender document, which means you are now in a binding agreement.

If there are added conditions you’ll agree on a date with the seller for these to be completed, and add that to the contract too.

When all the conditions have been met, the sale becomes unconditional and you are committed to buying the property.

It’s worth pointing out that sellers don’t have to accept any offers. There is a 5-day withdrawal time frame (which is their get-out-of-jail-free card).

This 5 days is there for the seller to consider, review and negotiate any offers on the table.

Who are tender sales right for?

Tender sales are common for home buyers and investors.

But, Micky Limmer, of Opes Property, says after 10 years in the industry he wouldn’t rush to buy a tender property.

That’s because as an investor, once you submit a tender offer you’re committed until after the tender process ends.

However, he says it’s important not to discriminate against the property by the sale process. It’s more important to get the right property than fret about whether it’s a deadline sale, tender or auction.

However, tender sales (and deadline sales) are particularly useful for first home buyers. That’s because it’s very difficult in the current climate for a first home buyer to make an unconditional offer, which is what you need to do when heading to an auction.

With a tender you can leave a lot of the leg work and cost until after your offer is accepted. That means you don’t spend money on lawyer’s fees and building inspections until you know your offer has been accepted.

What are the pros and cons of a tender sale

Now let’s go through the pros and cons of tender sales.

Pro #1 – Tender sales are predictable

A tender sale has an advertised deadline, so if you like the property, you make an offer by a certain time.

This can take pressure off buyers because they know that the property won’t be sold until the tender deadline.

Compare that to a deadline sale – even though there is an advertised deadline the property could be sold at anytime.

This means buyers have a set amount of time to:

• Complete any checks or due diligence

• Visit the property

• Fully consider your decision to buy the property.

Pro #2 – Tender sales are flexible

As already mentioned, tender sales are more flexible (compared to auctions) because there is more room for negotiation.

From a buyer’s perspective, you can add conditions to your offer.

If you play your cards right and find out more about your seller’s situation, you might just be able to put in a lower offer (in terms of price) in exchange for something else – like an earlier settlement date (if the vendor needs to sell early).

For sellers, you can accept any offer you like (doesn’t have to be the highest), and you negotiate the conditions with the buyers as you see fit.

Or you can choose to reject all offers … for whatever reason at all.

Compare this to an auction where every bid is unconditional. There is no scope to negotiate non-price factors, and you have to do all your due diligence before the auction.

Con – Tender sales are blind

The downside to all this flexibility is that tender sales are a blind process.

This can be frustrating because, unlike an auction room filled with potential sellers declaring their price offers in real time, you have no idea what other people are offering in a tender sale.

This means if you are out for a deal you won’t know if you’ve overpaid, or how much you’ve missed out by.

In an auction it is open for everyone to see.

What are some alternatives to a tender sale?

As we’ve mentioned earlier in this article, tender sales are only one of several ways to purchase property in NZ.

Here are some of the alternatives:

Price by negotiation

Price by negotiation means the seller can take an offer at any time. This is different to a tender sale, because there is no deadline – it’s an open-ended timeline.

However, once an offer has been submitted and conditionally accepted, any other offer that comes after will have to wait for the initial offer to be cancelled first.

This means that under a price by negotiation you need to make your offer more quickly. There’s no deadline to work with.

Often, with price by negotiation, there is no advertised price. So, it can be hard to know what price to offer if no indication is given. That’s the same as a tender.

Deadline sale

Deadline sales are very similar to tender sales. However, the main difference is that offers can be made (and accepted) at any point through a deadline sale.

And because offers can be accepted at any time, the property can be sold earlier than the advertised deadline.

This is all up to the seller. They can choose to sit there and wait until all offers are on the table and make the decision on the final day. Or they may choose to take the first offer a few days after going on the market.

So, if you’re making an offer on a property that is listed by deadline sale, you’ve got to be proactive. You often need to make your offer early.

Auction

A property auction is a public sale that happens in real time. Interested buyers all gather to bid against each other. The highest bid wins the property (after the seller’s reserve price is reached).

Similar to a tender sale, the auctioneer will not disclose the reserve price. But it’s easier to know what to bid, since the price will start low and go up.

If you win an auction you are committed to purchasing the property. The sale is unconditional, and you will usually pay the deposit on auction day.

How do I win a tender sale? (as a buyer)

You’re more likely to negotiate a good price if you know why the seller is selling. This is because in a tender sale there is more room for negotiation on certain clauses.

Here are the top 3 tips to be aware of when negotiating a sale as a buyer.

Tip #1 – Find out what the seller cares about (other than price)

Of course everyone cares about price. But there’s usually something else vendors (sellers) care about too.

For example, do they want a quick sale? Let’s say the owners have made an offer on another property and they need to settle as soon as possible.

Or perhaps the home owner is moving cities and has a tight deadline to sell.

In both these cases you could use this time constraint to your advantage and get a better deal on price.

For instance, you could organise an early settlement date, so that you pay the money sooner. Or you might not include conditions around alterations the vendor has to make to the house (that you would have otherwise asked for).

You could find the owners are more willing to come down on price in exchange for these conditions.

The only way to find out this sort of information is to ask the real estate agent some exploratory questions.

Here are some examples:

• How quickly does this need to be sold?

• What are some of the deadlines the vendor has given you?

• What’s going to make this offer stand out from any other offer?

Tip #2 – Make price your last point of negotiation

This is an important tip – leave the price negotiating till last.

When you talk to the real estate agent during a tender sale, you’ll likely get an idea on price.

However, when you’re discussing price it’s generally best to leave talking about it until the end.

Even if the real estate agent party tries to push it earlier, you can deflect on price and bring it back to something else before actually getting to specific numbers.

Ideally, you want a situation where you’ve been flexible with your offer. For example you might have:

• been flexible on the owners wanting to take the curtains with them and

• flexible on taking the awkward settlement date of December 23

And now the real estate agent (or owner) is so invested in the sale, he or she might just be more willing to negotiate on price.

Sure, these conditions might not be ideal, but you want to be flexible on all these prior details before you get to price … if you want a good deal.

Tip #3 - Get personal

Some buyers have been known to attach (to the tender document) letters about why they like the property.

They might talk about why the area is special to them, or why they want to raise their family in the home.

The idea is that these kinds of letters can pull on the heart strings (the emotional side) of the seller and make it more likely that they’ll choose your offer.

What if I don’t win the tender sale?

The only way to win a tender sale every single time is to be high on price, light on conditions.

But if you do this every time you may not get a good deal on your prospective investment property.

The point we’re trying to make is: You’ve got to be willing to lose.

You’re not going to win every single one when you’re hunting out a good deal – and that’s OK.

Remember, any property can be a rental, but not every property is a good investment at that particular price.