Classes of property advantages & disadvantages of the different methods of sale and when tender is most appropriate
There are 4 main methods of sale by stock and station agents:
Expression of interest
method has advantages and disadvantages. The advantages and
disadvantages depend largely on the class of property involved.
Can be the quickest and cheapest method of sale if interested parties respond straight away to the advertisement/promotion. The agent may already have a list of interested parties when the property is first put on the market.
The agent has the greatest control on the selling process
The seller's privacy can be maintained if required
If the sale fails, knowledge of the failure can be mitigated by simply withdrawing the property from the market. This will decrease any negative image caused by the property not selling.
As the expected selling price or range of the expected selling price is known, the method is less likely to attract non genuine enquiries.
The method allows negotiation of price
and sale terms. An attractive offer may be made which was unknown
The agent must be able to determine the expected selling price with reasonable accuracy; otherwise the correct target market will be missed.
A successful buyer may have been prepared to bid higher in a more competitive environment such as auction.
If the property is unusual and/or the expected selling price is difficult to ascertain, another method of sale such as auction or tender should be used.
A binding contract is not established until exchange. Therefore, either the seller or buyer can be gazumped resulting in monetary loss for the respective party and loss of goodwill by the agent.
With the good advertising/promotion the expected target market will be attracted to bid against each other.
The reserve price is not disclosed. Therefore, if bidders think the property is worth more than that determined by the agent/seller then the higher price will be achieved.
The public nature and excitement of the auction event encourages bidders who may otherwise hesitate to buy.
There is a binding contract between buyer and seller on the “fall of the hammer”. Therefore, the auction system avoids the odium of gazumping.
The terms and conditions of the contract are known by the buyer who must have finance arranged beforehand. Usually, 10% is paid on fall of the hammer. This speeds up the sale process.
The property can sell before auction, so that some of the advantages of a private treaty sale are possible. The desire to avoid public bidding and competition by an interested buyer may encourage a good offer before auction.
Inspection times are limited and the selling period is short - about 4-6 weeks before auction.
If the auction fails a sale by private treaty may still be possible by negotiating with the highest bidder. That is, a likely buyer is found who may not have been available under the private treaty system.
The seller is allowed one bid to encourage the sale process.
If the auction fails and moves to the private treaty system then little has been achieved after a great deal of expense and loss of time by the buyer. In other words the seller would have been better off with the private treaty system from the beginning.
The auction system is very public which often discourages sellers who wish to retain discretion and privacy.
The failure of an auction is public knowledge creating a negative image about the property and perhaps loss of goodwill by the agent. This is more so when the property is passed in without a bid.
Some potential buyers are put off by the competitive and emotional nature of an auction. Such buyers would have responded better to personal negotiations in a sale by private treaty or tender.
Although the auction system is less dependent on an accurate estimate of the selling price compared to the private treaty system it can still be undermined by the setting of an incorrect reserve price. An unsuccessful auction may be caused by a reserve that was set too high. In this case the seller has been subjected to delays and costs that he/she would not have incurred under the private treaty or tender system.
The costs of an auction is higher a sale by private treaty or tender
There are quite restrictive rules and procedures in the auction system in an attempt to stamp supposed “sharp” practices. For example, the registration of bidders. Such rules may discourage a segment of the market and raises the cost of the auction system.
Same advantages of promotion/advertising of the auction system in attracting the target market.
Suitable for classes of property that are unusual, large and therefore, the expected selling price is uncertain.
Less public and therefore, causes less interference with the seller's privacy
Forces an interested buyer to submit his/her highest bid rather than missing out on buying the property.
The tender system is most appropriate for leases and agistment agreements where the terms and conditions are fixed and non negotiable.
Less time wasted with non genuine buyers and enquiries as the system is understood by the more sophisticated section of the market.
The agent has good control over the sale process.
The highest tender does not have to be accepted.
No public competition and spectacle to encourage competition between interested parties compared to the auction system.
The terms and conditions may be known or settled beforehand. However, with an informal tender the tenderer may stipulate his/her own terms and conditions with the tender price.
There is no legal binding contract at the end of the tender process and therefore, as with private treaty the seller can be gazumped.
If the tender is unsuccessful, the agent may enter into negotiations with the highest tender moving into a private treaty system. Howevere, this has caused a long delay and greater expense compared with having used the private treaty system at the beginning.
Some potential buyers may be put of by a system requiring the lodgement of an offer in writing. Significant parts of the rural market prefer personal negotiation and bargaining with the agent.
The tender system is less well known to rural buyers than the other two systems.
Classes of property most suitable for sale by tender are:
Large complex properties in which the expected sale price is hard to determine and is uncertain.
Where there is a desire to force the lodgement of what the buyer thinks is the highest selling price.
Leases and agistment agreements where the terms and conditions are not negotiable.
Properties with a specialist or restricted target market. The agent can target the required market, for example, advertising in specialist trade journals. This avoids dealing and negotiating with unsuitable buyers and enquirers.
Properties where the seller prefers a
more private and discreet selling system than the auction system.
Formal or informal tender?
Most rural properties are sold by way of informal tender. Formal tenders are warranted for large, expensive properties often with a specilaised use or properties sold on behalf of a government department. If sold on behalf of a government department then the agent will need a copy anf follow the rules and procedures of that department.
What tender method should be used?
Open tendering (tenders invited by public advertisement).
The selective tendering method by which invitations to tender for a particular proposed contract are made following public advertisement asking for expressions of interest.
The selective tendering method by which recognised potential buyers are invited to tender for proposed sale of subject property.
1 and 2 are the most used.
Expressions of interest are generally used instead of direct public tender as a means of ensuring the following:-
the risk of the buyer failing to complete the contract being minimised.
a high standard of quality and performance be achieved.
obtaining an idea of whether the buyer has a degree of skill or expertise not generally shared by other contenders.
contract to be completed with minimum variation from selling budget or timetable.
the buyer is aware of and can overcome any unusual conditions or features of the sale.
The tender system can work well with an initial expression of interest if there is a need to reduce or vet the number of tenderers. Expressions of interest are covered below.
agent may be delegated by the seller to determine the most
appropriate tender method.