Tendering is the process of purchasing Real Estate through confidential submitted written offers. If you want to buy a property by tender, you prepare your best offer and send it to the seller to consider along with any other offers the seller gets. It is important this is done before the closing date and time of the tender.

An Open Tender gives all potential suppliers an opportunity to tender. A Closed Tender is where the property is offered to selected individuals or companies to submit a tender.

• There is no reserve price
• You must fill out the correct Sale and Purchase Agreement Form for Sale by Tender
• You can put conditions into your tender offer. But the vendor will take into consideration any conditions, particularly if there is more than one tendered offer. It is prudent to resolve as many conditions as possible before submitting the tender.
• You cannot buy the property before the tender closing date
• The price that you tender is the price that you are prepared to pay. Other people will perceive different amounts.
• The vendor is not obliged to disclose any details about the sale process
• If the vendor's price is not reached or if the tender offers contain unsuitable terms then the vendors may seek to negotiate an agreement with any unsuccessful tenderer

The great limitation with tendering is the lack of negotiation. You must spend time and money preparing the tender but you have no recourse if the vendor chooses another buyer.

You have to go through the same amount of preparation when entering the auction system but at least you have the opportunity to increase your price (bid) during the actual sale process. Even if you are unsuccessful at auction, you will know the final price, and the buyer.

Houses and property that are marketed via a price range– "offers above $250,000" or "buyer inquiry range $250,000 to $300,000" or BEO/BBO $250,000 ("buyer inquiry/bids over") are a trap. You are attracted by the lowest price (it is usually what you can afford) but the owner has expectations of realising a much higher price. The owner and/or their Agent have little idea of the true value of the property and hope that you will miraculously offer a "top price".

Instead, if you like the house, and know the market, make a reasonable offer close to the lowest price and stick to it. If they say "no", wait a few days and resubmit your offer. They will have said "no" to other buyers, as well. But after a few days they will have become "conditioned" into thinking that the market is much lower than their "high price" and they will be more responsive to selling at a lower price. Because they (owners and their Real Estate Agent) are unable to set a price, they have passed the buying advantage to you, so make the most of it. 

The owner (s) and/or their Agent are signalling that they do not know what to do regarding price. However, buyers will not respond to advertisements without a price. 

Buying a house or property by auction

Selling by auction has become a very popular method of selling houses and property.

• The negotiation process is the actual auction process and is quick - perhaps 10 minutes in duration
• You know the sale price the moment the hammer falls, not later as happens when you submit a tender or other offer
• As the wining buyer, you only pay slightly more than the next highest bidder
• You can gauge the level of demand for the property by identifying the number of bidders in the Auction

• The short duration of auction bidding process can be too stressful for some people
• The speed at which bids are made can leave no time for thought. It is easy to lose track of where your bid has got to in the bidding process
• You must understand the value of the property and have determined your maximum bid well before the auction day
• You cannot impose conditions on the sale - if the vendor has not repaired a leaking gas main by the time of the auction, as promised, there is nothing you can do about it
• It is important to not get carried away by the moment and be steamrolled by an aggressive auctioneer
• The auctioneer's agents, and sometimes the owner, are permitted to bid against you until the reserve is met. If the reserve is not met, and if you are the highest bidder, you have first chance to negotiate a deal. Internal bidding can inflate the starting price for any later negotiation.
• If you get a building inspection or a professional valuation done on the property before the auction, and if you are unsuccessful at the auction, you have lost money

Tips for buying at an auction:

• Never divulge your bidding strategy to the Real Estate Agent, or declare what you think that property is worth or what you are willing to pay for the property. They will convey this information to the seller and use it to set a higher reserve.
• Before going to the auction, evaluate the maximum you are willing to pay for the property and do not be tempted to move over that value in the heat of the moment
• Do not listen to what a Real Estate Agent may tell you about the expected price that the house will sell for - its always much less than reality and the low value is used to trap you into attending the auction. Make up your own mind.
• Go to a couple of auctions beforehand so that you are familiar with the auction process
• At the auction, do not listen to what a Real Estate Agent will tell you about other bidders in the room. How would they know? Again, he/she is trying to increase your fear of losing out and to stampede you into irrational bids.
• Try to evaluate how many people in the room are actually bidding. Standing in the back of the room so you can see where the bidding lies can be a strategic advantage.
• If you are using another party to bid for you, make sure that they know your highest price
• Take somebody with you to the auction and get them to write down the bids on a piece of paper so that you can quickly see the current highest bid
• Remember that most often, opening bids will be made by the vendor, the vendor's agent or the auctioneer and that they may continue to bid provided the property has not met its reserve. This is done to get momentum but you could potentially be bidding against the vendor.
• Be aware that if two people are bidding madly on a property there may be a "sleeper" third bidder who does not come into the bidding until the very end when the bidding increments have got down to hundreds rather than thousands of dollars
• Be aware of the bidding denominations. Are they going up in bids of $10,000 (auctioneer still thinks the auction has got enough legs for more bidding), $5,000 (auctioneer thinks the bidding is slowing), $1,000-2,500 (the bidding is starting to slow).
• Listen for the words "the property is on the market". This means the price has reached the reserve. Often when the property reaches the reserve there will be a second burst of bidding.
• Auctioneers stack the order of properties to be sold so that the first, and last, to be offered will likely exceed the reserve. Having a "good" one as the first auction of the day encourages bidding on subsequent auctions. Having a "good" one as the last auction of the day means that the audience goes home thinking that auctions are the best way to sell.

If the property that you want to buy is first or last on the order paper, delay bidding until the reserve has been reached and the property is "on the market". Otherwise try to be the highest bidder and be prepared to negotiate after the auction.

At the start of the action, the auctioneer will usually start very fast with Auctioneer gabble gabble to try and whip buyers into a bidding froth. Try and resist the temptation of making a bid too early. Wait for the very last minute before making your bid and only if that bid is below your maximum. Remember the auction will slow down toward the end of bidding process and this should give you the chance to make your bid. There should be plenty of time before the auctioneer says going once, pause, going twice etc.

Sometimes towards the end of the auction, the auctioneer's agents "helpers" will target bidders and whisper words of encouragement to them to make another bid. At this point, you know that the auction his reaching its zenith and if you have the money, now is the time to start bidding.

If the auction grinds to a halt, the auctioneer will stop proceedings and go and talk to the vendors. The auctioneer will try and talk the vendors into lowering the reserve price. When the auctioneer comes back, pay close attention if you are still in the running as the auctioneer will try and close the auction as soon as possible. If you are going to bid, make your presence known or the property will go very quickly to the highest bid that was made before the auction was suspended.

If the Auction fails to reach a conclusion, the Auctioneer will pass the property "in". In this situation, the highest bidder has the first right to negotiate with the vendor.

Is an auction best suited for a property buyer or property seller:
The Auction Process favours the buyer at the expense of the seller. If the buyer does not "buy", he/she walks away with their money intact. If the seller does not "sell" they walk away with a loss due to auction advertising and auction costs.

The buyer, on the other hand, has only to pay a little more than the second highest person interested in purchasing the property. This may be much less than what the buyer was prepared to bid - if he/she buys it for less, it’s a bargain.

Because the seller has auction costs, it is in their best interest to sell on the day of the auction. The Auctioneer also wants a sale and he/she will apply a lot of pressure to the seller to accept whatever price the auction realises - even if it is way below the seller's reserve.

If demand for the property is low on the day of the auction because of extra-ordinary factors (cold, wet weather), the vendor will be pressured by the agents to drop their reserve price. The buyer can take advantage of this at the expense of the seller.

However, the buyer can also face costs. If he/she has commissioned building inspections/LIM Reports, and is unsuccessful at the auction, there will be costs owing by the buyer.

Finally, you have found the house that fits most of your criteria. You may have found it through a visit to an Open Home conducted by a Real Estate Agent or from an inspection visit arranged through a Real Estate Agent. You may have found it from a Private Sale web site or via street-side signage. You have commissioned a pre-sale inspection and looked at the LIM Report.

When it comes to negotiating the purchase, notify the Agent / owner that you want to submit an offer. Try to find out if there are other genuine buyers also making an offer on the property. Sometimes, an Agent will volunteer that another party is interested in the property. If so, ask the Agent when the other party is going to submit their offer and submit your offer at the same time, or earlier. Remember that the other party may or may not actually submit an offer.

Usually the Agent will fax/deliver a Sale Agreement to you to sign and return. It is the Agent's job to negotiate back and forth between the buyers to get the best price for the vendor.

In Private Sales, you would submit your offer to the vendor's lawyer, either directly or through your lawyer. The Sales Agreement passes back and forth until a negotiated settlement is reached.

Depending on the pressure of other potential buyers, your first offer would be less than the asking price. You need to have a good appreciation of the market and of the worth of the property. Remember that the vendor also has a shrewd idea of the property's worth and will have set the asking price somewhere above this level.

If your offer is too low, the vendor will discount your approach out-of-hand. Make your offer at a level that is a little less than what you think "true value" should be. Leave room for the vendor to start the negotiation. For example, the asking price is $400,000 and your market analysis suggests the "true value" is $385,000, you may initially offer $370,000. If the vendor comes back at $390,000, counter-offer at $385,000. If they won't budge from $390,000, negotiate to have some of the chattels included - refrigerator, freezer etc.

The vendors will probably come back at $390,000 including the chattel you asked for. Deal done.

If you perceive that the vendor is very motivated to sell your first counter offer should be less than $385,000, perhaps $375,000 (looking to settle for less than $380,000).

However, if the vendor has set a realistic price that truly reflects the current market, don't muck about - pay the price and secure your new home.

If you have a guaranteed bank loan, tell the vendor - it signals your commitment and that you are a "cash buyer".

Submit your offer with a clause that states the offer is only valid for 24 hours. This will place greater pressure on the seller to make a decision. It also puts pressure on any other potential buyers as they will have very little time to prepare their own offer.

Try to be the first buyer to make an offer. A pre-emptive strike will often deter other potential buyers. However, there may be other buyers also submitting written offers. If you really want the property you may be faced with having to pay above the initial asking price.

When submitting an offer to a Real Estate Agent:
You have notified the Real Estate Agent that you would like to submit an offer for the property. They have faxed / delivered a Sale Agreement for you to sign. Now its up to you to enter your price and any terms that relate to your offer such as:

• Offer being subject to finance
• Offer being subject to you first selling your present house
• Offer being subject to all electrical and plumbing fixtures being in sound working condition
• Offer being subject to a "no gazumping" clause that states that gazumping will not be permitted and that any offers the vendors receive after they have accepted your contract must be turned down
• Offer being subject to the approval of your lawyer. Note that your lawyer / solicitor can disapprove of an agreement, but on strictly legal grounds only, such as matters relating to the property’s title or to the conveyancing transaction.
• Offer subject to a satisfactory building inspection. Note that "Offer subject to a satisfactory building inspection " is not necessarily a clause that the buyer can use to break the contract because the vendor may insist on fixing the problems identified in a building inspection report.
• Offer subject to all electrical and plumbing fixtures being in sound working condition. You may find it difficult to test some items such as the dishwasher or the alarm to see if they work. Test as many electrical fittings as you can (refrigerators, dishwashers, waste disposals, stoves, ovens, wall heaters, garage door opener etc) as getting redress after the sale process is often difficult and likely to cost more than the repair.
• Offer being subject to Due Diligence. If you think that you may want to withdraw from a binding sales agreement, your lawyer can assist you in drafting a Due Diligence condition to insert into the Sales Agreement.

The more terms you submit on your offer the weaker your offer will appear to the vendor and they may turn you down at the outset. However, the more terms you include the more flexibility you may have in breaking the contract if you do not wish to continue.

Note that until contracts are exchanged, the sale agreement is not legally binding. Both the buyer and the vendor can pull out at any time and a "no gazumping" clause is only legally binding after contracts have been exchanged and signed by both parties.

Before sending any contract to any Real Estate Agent, we strongly recommend that you give it to your lawyer / solicitor to read. You lawyer / solicitor will conduct a title search and alert you to any problems. For example, the constraints imposed with cross-leased titles and any caveats on the title.