Tenders 101: A guide to understanding the tender process

In my last article I covered the method of sale by “expressions of interest”, so in this one I am expanding on the wider subject to discuss the system of sale by tender. 

According to Wikipedia, ‘A tender offer is a corporate finance term denoting a type of takeover bid’. The site doesn’t even consider it as a means of selling residential property. So clearly this system is really going to confuse everyone in the residential market. 

Or will it? This is actually a very effective mechanism for the sale of high-value property where there is genuine uncertainty about the potential price. The fact is that appraising the value range of most properties is fairly easy to do. You do your research, investigate recent comparable sales, talk to the neighbours to get their feedback (who will of course add 30% to their own estimates, which you then deduct) and Bob’s your uncle. 

But what if the property isn’t so easy to appraise, either by the vendor or by the agent? And what if there are no recent comparable sales or current listings to go by? What if the property is a deep-waterfront with its own jetty in Point Piper and the question is not what it is worth but what someone will pay for it? (A classic contradiction in terms). 

This is when you go to tender, and the system offers significant advantages: 

• No ceiling set on asking price 

• Tenders only attract genuine buyers and encourage them to offer their best price 

• Flexibility of terms and conditions of sale –the vendors set the most beneficial terms for themselves such as “settlement period up to 12 months”, but can also allow the buyer to include incentives that may be deal-breakers. i.e. “I’ll pay you $5 million and throw in my Ferrari”. 

• Confidentiality - Tenders submitted are confidential and the final sale price of the property or buyer’s name are not generally disclosed to the public 

• Tender only requires one bidder where auction requires two or more to push the price up 

• Sense of urgency – Tenders have a start and finish date 

• Tender submissions may be limited to buyers who pay a refundable cash deposit as a sign of good faith (weeding out tyre-kickers) 

So what happens if the tender falls flat on the closing day and there is no clear winner? This is when the parties (and their agents) are now in a perfect position to negotiate and close the deal based on the most favourable conditions on the table.

Tim Mansfield is founder and principal of Sydney-based buyers' agency Prime Property Buyer.