Tendering is an uncertain business
Property in Ireland is generally sold in three different ways. The most common method of sale is by private treaty, usually through an estate agency. The second most common form of sale is by public auction and this has become increasingly popular for Irish sellers in recent years. The third method of selling property is to offer it to tender.
Tenders have, in the past, been used mainly for commercial property transactions, or for the sale of unpredictable assets that are difficult to value, or indeed for the sale of State assets.
Sale of residential property in Ireland by tender is not a common occurrence; however, the unusual market dynamics in Dublin at the moment – high demand against a backdrop of market uncertainty, where low supply levels are driving aggressive bidding – has prompted some local agents to revert to this type of sale. The main reasons for an estate agent opting to market and sell by tender are as follows:
- There are a large number of genuinely interested parties with little to separate them in terms of price and status.
- Where the seller wants to close the bidding process by a set date, at the best possible price – in the current market, a protracted transaction is a vulnerable one.
- Where the property, or indeed the local market, is unpredictable or difficult to gauge in terms of worth or value.
So, this raises the question among inexperienced buyers: what exactly is a sale by tender and how does it work?
Tender describes the sale of a property offered on the open market, sometimes with a reserve price but not necessarily, and most importantly, sets a deadline for offers to be made by prospective buyers. The date is set out in advance and, unlike a traditional auction, offers will not be responded to in advance of the tender date i.e. the property cannot be sold in advance of the tender date unless specified. This gives some security to intending bidders, who will need to carry out any financing obligations and surveys prior to making the bid.
What we see at work in the local residential market is a quasi-tender scenario whereby the estate agent offers the property for sale by private treaty but subsequently advises that the best bid, by a certain time on a prescribed date, will be the winning bid. In this type of scenario, there is rarely a tender document setting out terms and conditions. Nor is there a prescribed acceptable format for bids, except that the offering must be put forward in writing (which I would advise for any offers, using any method of purchase).
The tender process sounds similar to the auction process however; there are a number of important differences. Firstly, unlike at auction, a tender offer may be made conditional, although this is not advised; secondly, a tender offer is made subject to contract, which means that the winning bidder goes forward to sign contracts as if the property had been purchased by private treaty. In the auction room, this is very different. As the hammer falls on the winning bid, a contract is entered into by both parties.
The third important difference for would-be buyers is that unlike in the auction room where bids are shouted out, the bidding through tender is confidential. This means that bidders will not know how high or low to aim and may end up missing out on the property in question, or worse, grossly over-paying for it. The best way to avoid this is to determine market value, find out as much about competing bidders as possible and to present yourself as the best possible bidder.
Do not be confused by the term ‘best bid’, this does not automatically translate into the highest bid; it is about the best overall package that the buyer has to offer. This package is akin to a business pitch – while a tender document might not be in use, bidders are advised to put forward the following:
- Set out what price you are willing to pay.
- Set out how to plan to finance it and include proof of funds.
- Have your structural survey done in advance so that your bid is not subject to survey. While a conditional bid may be accepted, a competing bid of equal or similar value, that is unconditional, will trump yours.
- Include a booking deposit (5 percent) or a contract deposit (10 percent), depending on how much you want to secure the property.
- Include a piece of personal information about yourself or your plans for the property that establishes you as a credible and committed buyer.
The general rule with tenders is that when all else is equal, the highest unconditional cash offer from a credible source wins. As the figure is the single greatest unknown in the tender equation, it is crucial that all of the other factors that are within your control are in your favour.