Selling by Tender
What does selling by tender mean?
Updated March 14, 2022
In Australia and the United Kingdom, unique and luxury residential properties whose values are difficult to determine because there are no comparable sales are sometimes sold by tender, a type of silent auction that pits bidders against each other to create price-raising competition.
In such sales, which are becoming more popular in Australia, the seller lists the property through regular channels, setting a due date for tender applications. Bidders are invited to inspect the property in person. In the United Kingdom, the seller is charged only a small fee of a couple of hundred pounds to do this.
In Australia and the U.K., homes are sometimes sold by tender, a type of silent auction that pits bidders against one another. Credit: Merio/Pixabay
The listing, however, does not include a sales price, so bidders have to rely upon their own instincts about the value of the property when coming up with offers. In theory, this means that the bids will be quite high—there is no chance to revise the offer upward in a field where the prices proffered by the other bidders are secret.
It also means that the bids can be all over the place because there is no price-base guideline.
These applications are delivered by bidders in sealed envelopes and generally include price, interest rates and special terms and conditions, such as a requirement that a building permit be produced before the sale is finalized, as well as a deposit and a tender submission fee.
After the due date, the seller opens the bids, and if there is one that’s suitable, chooses a buyer. The seller does not have to pick the bidder who submitted the highest price; there may be other factors that make a lower bid more acceptable.
Once the seller accepts, the tender submission is binding, although the potential buyer typically has a couple of days during a so-called cooling period to back out of the deal.
Tender sales are all cash, and in the U.K., it is the buyer—not the seller—who pays the real estate agent’s fee, which typically is about 2% of the final price, and can be quite hefty on high-end properties.
If there are no acceptable offers, the seller is allowed to negotiate with the bidders or reject the bids and begin the process all over again. Of course they can also opt to try to sell the property via the more conventional options of auction or private sale.