What is an informal tender?
Updated March 7, 2022
https://www.mansionglobal.com/library/blind-offerThe most common way of selling and buying a property in the U.K. goes as follows: A vendor (seller) puts their property on the market with an estate agent, who gives an asking price, and invites buyers to view it and make offers on how much they are prepared to pay. Sometimes an agent may have a buyer in mind before the property is even publicly advertised.
The vendor agrees that on the sale of their home, the estate agent is paid a percentage of what the property sells for.
The offers are passed on to the vendor as they come in, at which point they make a decision on whether to accept them or not.
Once an offer is accepted, no money changes hands, but there is what is colloquially known as a “gentleman’s agreement,” an informal, nonlegally binding deal based on fairness, that the vendor will sell to the buyer whose offer they accept first. Usually the property will appear on the agent’s website as sold “subject to contract.”
Photo: Austin Distel / Unsplash
If a vendor goes back on this deal and sells to someone else, perhaps another buyer prepared to pay more, the original buyer has been gazumped.
Increasingly, however, some estate agents are offering alternative ways to sell a property.
One such method is via informal tender.
Informal tender is designed more like an auction, one that is blind. It is often referred to as “sealed bids.”
An agent might organize an open house, where buyers all visit a property on a set day. They are then invited to submit their offers in a sealed envelope, based on a looser guide price that an agent will set, by an agreed date.
Bidders do not know what others have said they will pay.
Bidders also have to detail their financial position, and buying position. For example, whether they have a property to sell themselves before they can move, and whether they are cash buyers.
All offers are presented to the vendor at once, and the vendor will pick a buyer based on the offer they like best. It could be the person prepared to pay the most, or it could be someone who is chain-free, buying without a mortgage or prepared to move fast.
There is no obligation to accept any of the offers, however, and you could go into negotiations to see if any of those prospective buyers will increase the price they are prepared to pay.
Equally, the buyer may decide not to go ahead. This is not a legally binding process, hence the description as an “informal” tender.
It is believed that sealed bids can drive up the price that is paid, because there is a sense of urgency and competition. It may also help buyers get the best deal possible in a busy market where there are lots of buyers wanting to make an offer.
But the informal tender process has also been criticized for being more in the agent’s favor. Some agents structure their charging differently with informal tender—with both the seller and the buyer paying a set fee or a percentage of the sale price.
There is also a potential conflict of interest if the agent is financially incentivized by both seller and buyer. Usually an agent acts only on behalf of the seller.
There is an argument that the seller loses when a buyer has to factor in fees, meaning they are likely to have less money left over to pay for the property.