Different methods of buying and selling property

There are several methods of buying and selling property in New Zealand. It is important that you understand the particular process for the property you are buying or selling. Practices also vary between agencies so make sure you confirm details with them.

• AUCTION
• ASKING PRICE
• PRICE BY NEGOTIATION
• TENDER
• DEADLINE SALE

 Auction

An auction is an open process where buyers bid against one another to purchase a property. If you are selling a property by auction, you will need a sole agency agreement with an agent, have an agreed marketing plan and establish a reserve price in advance of the auction. When selling your property, there are quite a few different modes of sale you can opt for. When it comes to the choice of selling your home through the auction process, the choice will be largely dependent on the type of property you have. Higher end and luxury properties are often sold through auction due to the nature of New Zealand auctions focusing on the quality of the property, with price being the secondary concern. In this environment, keen bidders can drive the price of the property above market expectations in some cases, with no pressure to sell if the property fetches a lower than expected bid. Another benefit to selling at auction, is that you will attract genuinely interested buyers. In New Zealand, those bidding at auction must do their due diligence before bidding. This means the contract of sale is not subject to inspections or finance – as these must be organized before auction day and ensures only serious buyers will show up to bid.

Before the auction

Auctioning your property is about so much more than simply showing up on auction day. There’s a lot that goes into it before-hand to ensure you achieve the best result possible for your property. Marketing your property well is chief among the things you’ll need to do.

Your agent should walk you through your marketing plan in detail, from the images that’ll be selected and advertised, the copy that will be included, to where the property will be advertised (online, papers, brochures, in office).

Before you go to auction, you should expect to hear from your agent on a daily basis and a face-to-face meeting around once a week. Ideally, you’d receive a written report which summarises all of these activities as well as the interest in your property. Your agent should also be keeping you well-informed of the market, so that you can make the best decision come auction day.

What is your role on the day?

If you’re in the country, the best recommendation is to attend your auction. It’s great to have you there if there are any last minute questions. Some common ones buyers ask are: “Can we vary the deposit amount?” or “Can we vary the settlement date?”

Your auctioneer will also want to confer with you depending on how the auction is going. If bidding stops below your reserve price for example, your auctioneer will want to discuss next steps with you.

Getting to know your property

The auctioneer should be introduced to your property, much as your agent has been. They should walk through the property, understand the features of the home, and really understand why a buyer would fall in love with it. That way they’ll be able to better represent your home to buyers.

Your auctioneer will also want to know all about the interest the property has received. They’ll ask your real estate agent detailed questions about it. How many inspections have there been? What kind of interest has the home received? Have any valuations been done? Any building/pest inspections? Does the buildings age suggest a dampness or infra red test for water damage be conducted? Is the property fibre ready?

Marketing

When it comes to marketing your property before auction, the rule seems to be more is more. The success of your auction can be largely dependent on your marketing campaign.

The latest research from Harcourts, showed a direct correlation between the amount spent on marketing versus how much interest was generated for a property, and what price it sold for. On average, properties that sold in the shortest timeframe invested a further $1,913 in marketing than those that did not see a sale in the 45 day period.

Our Harcourts Promise and written marketing plans ensure a smooth marketing campaign and that you recieve feedback on what prices buyers are indicating they are willing to pay for your property.

The reserve price

It’s important for you to understand and be clear on what your reserve price is, and how it’s used during the auction. Your auctioneer should be able to explain this to you in detail. You will need to discuss your reserve price with your auctioneer.  They should be working to ensure you get the best price possible for your property.

That being said, try to avoid openly discussing price with others, to reduce the risk of price leaking out into the market. The auction should focus on the product (your home), and price should become secondary. Harcourts CEO, Chris Kennedy believes there are three types of figures to consider before the day:

• Your happy price – The figure you’d be very happy to accept.
• Your ok price – The figure you’d be ok with based on the feedback you’ve received, you don’t see a win but you don’t see a loss.
• Your grumpy price – This last figure is basically the one you wouldn’t be thrilled with, but given market conditions, you’re prepared to unhappily sell at that price.

Remember, at all times during an auction, you’re in control. If a bid is high enough take it. If not, don’t. But the reason for not taking the offer needs to be greater than the reason the home is on the market in the first place.

Advantages of selling by Auction

• Builds urgency and a purchase deadline amongst buyers
• Creates a competitive transparent purchasing environment
• Finds a true ‘cash’ buyer with no conditions
• Provides complete control for seller – you set the terms
• Option of accepting offers prior to auction
• Removes risk of under or over pricing
• Focus is on the property and not the price

Buying and Selling at an Advertised Price

This is when the property is marketed with a selling price – the amount the seller wants to be paid for his property.

Price By Negotiation

This is decided by the seller in discussion with the agent, taking into account the seller’s views and the agent’s appraisal of the property’s value. The seller will also agree a marketing plan with the agent. Selling by negotiation removes the need for you to set a sale price for your property, instead placing the decision in the hands of buyers. An offer for your property can be received at any time. You then can accept, decline or negotiate with the prospective purchaser.

In this sale method, there is no end date for offers, and potential purchasers make offers based on what they think the property is worth in the current market.

A vendor may want to list their property for sale by negotiation when it’s difficult to estimate the market price of their property. 

There are different ways of selling a property by negotiation. One is to market it as buyer enquiry over (BEO) or buyer budget over (BBO) a set price or by providing a pricing guide.

The BEO needs to be realistic, and if the vendor rejects offers over the BEO, you may need to re-evaluate the BEO

Managing the offer process

If a potential buyer makes a written offer, you need to present it to the vendor. You may want to ask any other interested buyers if they would like to make an offer, although the first offer needs to be presented within a reasonable timeframe. It’s important you check the first offer for a sunset clause to avoid placing your vendor or customers under undue pressure.

If there is more than one written offer, it becomes a multi-offer process. You can find more information about selling a property by multi-offer here.

If there is just one written offer, the vendor can consider the offer and decide what to do:

• Consult their lawyer or conveyancer, sign the sale and purchase agreement and accept the offer.
• Reject the offer. In this case, the buyer may decide to put in another offer. You don’t have to tell the buyer why the vendor rejected the offer, but it may be helpful for them to know so they can make a better offer next time.
• Negotiate the offer. The vendor may decide to make changes to the sale and purchase agreement, which you will need to point out to the buyer. The buyer will need to review the agreement and only sign it if they are happy with it. The vendor and the buyer may go back and forth a few times before they agree on terms they are both happy with.
• The buyer can withdraw their offer at any time before it has been agreed and signed by both parties. A verbal acceptance from a vendor is not binding, and they can still choose to accept an offer from another buyer.

Completing the sale

If the vendor accepts an offer, the buyer and vendor will need to work to meet any conditions included in the sale and purchase agreement. You may need to provide access to the property to help the buyer satisfy their conditions, for example, if the property needs to be inspected by a property inspector.

If the buyer needs more time to satisfy their conditions, the buyer’s lawyer may work with you to arrange this with the vendor. Any changes will need to be signed off on the sale and purchase agreement by both the buyer and vendor.

When all conditions have been met, the lawyer or conveyancer can confirm the sale is unconditional.

Tender

The tender process has a set deadline for prospective purchasers to put forward their best offer for your property. After the close off date you have the option to accept, decline or negotiate any offers. Due to this level of flexibility some prospective sellers consider tender as a viable option.

Listing a property for sale by tender is a process where buyers submit written offers to the agency before the specified deadline. The tender process is not defined in legislation – the process is set out in the tender document.

The listing agent and selling agent(s) may work with a number of prospective buyers to help them submit tenders. If the listing or selling agent is working with more than one prospective buyer, they shouldn’t share tender details with anyone other than the vendor.

The branch manager or supervisor will usually present all tenders to the vendor after the deadline. The tender deadline will set out how the offer is made and considered – it is usually submitted in a sealed envelope and is not opened until after the tender deadline. The listing agent may be present for this as well as the vendor’s lawyer or any support person the vendor chooses.

Listing by tender may be useful when:

• the property has unique features that make it difficult to price
• the vendor has time constraints or a deadline
• the vendor doesn’t want to share their price expectations with buyers
• there are privacy concerns for one or both parties.

These are some key points about the tender process:

• Tender offers are usually opened after the tender deadline, although the tender document can set out a different process, for example, that the property can be sold before the deadline. The advertising should make this clear and include a phrase like “unless sold prior”.
• The vendor may also be able to change the deadline. You should discuss any benefits and drawbacks of changing the deadline with the vendor and notify interested buyers if the deadline changes.
• Prospective buyers will be asked to fill in a legally binding tender agreement, which includes the tendered price and conditions of sale.
• Prospective buyers provide a deposit, which is typically 10% of the purchase price, with their offer. The deposit is returned if the tender is not successful.
• You must keep copies of all tendered offers for 12 months (rule 10.12).
• When the tender offers have been opened the vendor may choose to negotiate further with one or more tenderers or reject all offers.

Dealing with tender offers

Tenders can be submitted any time up to the deadline. It is a good idea to let prospective buyers know to put their best offer forward because they are unlikely to have an opportunity to change their offer once it is submitted.

When tenders are submitted, they should be kept in a safe place where they will not usually be opened until after the tender deadline, although the tender document can set out changes to this process, for example:

• that offers can be considered before the deadline
• that the deadline can be extended
• that tenders can be opened before the deadline to check that the tender document has the correct and necessary information.

You should discuss the benefits and drawbacks of accepting offers early or extending the deadline with the vendor. 

Buyers who submit a tender offer should be made aware that they cannot usually withdraw their offer until 5 working days after the tender closing date.

Opening and accepting a tender

When the tender has closed, the offers can be opened with the vendor and your branch manager or supervisor. Once opened, check that the tenders submitted meet the vendor’s requirements and are completed correctly, with the necessary signatures and deposit.

The vendor can accept a tender, reject all of them or negotiate further. The 5-day withdrawal time frame helps to provide the vendor with time to consider the offers, make enquiries and negotiate if necessary.

When the vendor accepts an offer, they will need to sign the sale and purchase agreement and you will notify the successful party. You will also need to contact the unsuccessful parties and return their deposits and documents.

Deadline Sale

Deadline sale is a sales method where a property is marketed for a set period with an advertised end date. 

Listing a property by deadline

Offers can be made at any point up to the end date and because vendors can choose to accept an offer at any time, buyers need to be proactive in registering their interest with you.

The marketing should make this clear for interested buyers by stating something like ‘unless sold prior.’ 

Offers are made on a standard sale and purchase agreement.

How is it different from a tender process?

A deadline sale offers vendors more flexibility than sale by tender. The vendor can accept an offer at the time that suits them.

They may also choose not to accept any offer until the end date. Offers are made on standard sale and purchase agreements and prospective buyers can include terms in their offer.

Consideration of offers

The vendor can wait until the end date has been reached, and consider all the offers together, or they can accept an offer at any point during the listing period.

Under rule 10.10 you are obligated to submit all written offers you receive to the vendor.

Rule 10.10 — A licensee must submit to the client all offers concerning the grant, sale, or another disposal of any land or business, provided that such offers are in writing.

You must advise your client about all written offers so the vendor can decide whether to view the offer at the time or wait until the deadline date. You may also want to inform potential buyers about the vendor’s time frames to better manage their expectations.

You cannot withhold an offer from your client. 

Is the vendor bound to accept the highest offer?

The vendor is not bound to accept the highest offer.

The vendor drives the process and chooses when they’ll look at the offers, whether they’ll accept any offers, and who they will negotiate with.