Why so many Tenders/Auctions?
Why won’t they just give us a damn asking price? Smart home owners will always look to employ a strategy that will allow them to achieve the best possible price. Wouldn’t you do the same if you were selling?
Selling by Tender is a private process which suits Wellingtonian’s conservative approach to real estate. Owners like that they can review all offers on their property at once. They can still negotiate with any offer and there is no reserve price that they are pre-committed to accepting.
Sellers can think about any offers overnight if needed and obtain professional advice before accepting anything. They are also able to open their property up to both cash buyers and those with conditions. Thereby increasing the pool of potential buyers.
Does it result in a better sale price?
Different buyers will value the same property at different amounts, depending on its suitability to their needs, their motivation to buy and their emotional attachment to the property. This can often result in situations where prices can vary between buyers and this can favour sellers if one buyer sees value much higher than another.
Conversely, Auctions are considered a “fair fight” for buyers. You can eye up your competition and you only need to pay $500 more than the next buyer to secure your new home. Emotion and competitiveness can take over and people can push themselves well beyond preset limits, however, you can at least (usually) buy safe in the knowledge that another buyer saw value almost as high as you did.
So which one works better?
It’s one of the first questions any potential seller will ask: What is the best way to sell?
Real estate salespeople vehemently debate which process works best and when it comes to advising owners, they can be very passionate about their views.
Since it’s such a hotly debated topic, I decided to run the numbers to provide some clarity.
I analysed every sale recorded by REINZ in Wellington City from August 2016 to July 2017 to find out the answer. That’s 3367 total sales. I’m getting knee-deep in Excel right now!
And the winner is:
Drum roll, please…
But it’s close…
The graph above shows the median percentage above RV (by month) for each selling method (Auction, Tender, Private Treaty) over the last year.
What’s Private Treaty you ask? Basically, anything that wasn’t an Auction or Tender. Think BEO, BBO, EWF, Priced, Expressions of interest, By negotiation – or any other jargon term real estate salespeople dream up to confuse the public.
- Only Tender consistently out performed Private Treaty, month after month.
- Auction results vary wildly. When they work, they are outstanding. The rest of the time, they are about average. It is worth noting that the sample size with Auctions is smaller as there are less of them in Wellington so this will contribute to the more sporadic figures.
- You would be crazy not to do one or the other. Properties sold by Tender or Auction consistently out perform the rest of the market.
- Tender out performed Private Treaty by an average of 8% per month. Based on the median sale price of $625k in July 2017, that would result in a difference of $50k!
I have seen both processes used to outstanding effect and I firmly believe 3 things after 11 years in this business:
- Not every property is suitable for an Auction, but when they work well they are unbeatable as a process. Tenders, however, can work for almost any property. So, if you are a bit of a risk-taker, go Auction. If you want dependable results, go Tender.
- You would have to be crazy not to consider using one of those two processes when selling your property.
- There is no right or wrong approach. It comes down to what suits your personality and your property. I can give you countless examples of properties that sold for a huge price at Auction that never would have achieved the same result via Tender. I can also give you countless examples of Tender outcomes that would simply not have been possible to achieve via Auction.
In Auckland & Christchurch Tenders are rare and I believe this is largely driven by the recommendation of top salespeople and the ethos and focus of the dominant real estate companies in each market.
When prices are rising you will see more properties being sold through Auction or Tender. In a down market you will see more properties being marketed with an asking price, often because salespeople and owners don’t want to risk suffering the embarrassment of holding and Auction or Tender with no bidders.
Before you go…
PS. If you are thinking of selling and would like an agent recommendation you can email me for advice. I can tell you exactly who I would personally use in each town, suburb or City. Don’t go with a random guess. This is your biggest asset and it’s important that you have the right representation. Click here to read more.
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