Tenders abound… but it’s a secret
I have written previously about the increasing reliance of city centre estate agents on tender as a method of sale but it is fast becoming a problem for buyers, particularly first-time buyers. While agents are using the word ‘tender’, what is happening in the marketplace at the moment is effectively a hybrid of private treaty and auction styles, with the element of secrecy thrown in for added confusion. The term ‘Tender’ technically refers to the sale of a property offered on the open market, usually with a guide or reserve price, and with a set 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 method of sale is more commonly used in commercial property transactions and it is especially popular for the sale of unpredictable assets that are difficult to value, or indeed for the sale of State assets. I am only aware of single residential properties selling by tender in the Capital and would be interested to hear of any buyers’ experiences of this nationwide.
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 resulted in more of this type of sale but it is not a straightforward tender. What is happening with this type of sale in the market at the moment is a quasi-tender scenario whereby the estate agent offers the property for sale by private treaty then subsequently calls for interested parties to put forward their best bid by a certain time on a prescribed date. The best bid – note, not the highest bid – will be successful. When a tendering situation occurs like this, 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. Bidders might be told how many bidders they are competing with but they will not be made aware of the value of competing bids. This lack of clarity adds to buyers’ confusion – it’s like being invited to play a game without being told what the rules are. It is fundamentally unfair. While I would generally like to see buyers walk away from such unfair transactions, I accept the reality that despite a fair amount of apartment stock in the city, home-buyers still fall in love with one. Falling in love with a prospective property, any property, is usually not a wise thing to do and this is particularly true where there is plenty of competing stock.
Of course, there are many advantages for sellers who offer their property for sale by tender; generally it shuts down protracted bidding and effectively separates the serious bidders from the window-shoppers. In practice, because of the element of secrecy, it usually results in a higher sale price as the highest bidder is, in most cases, separated from the next bidder by a much higher figure than transparent bidding would deem wise. For larger holdings, where developers compete by tender, the idea is that the property goes to the party who will use it most profitably i.e. they can afford to pay the highest price. And in a way, that makes sense. But it does not make sense to use this type of sale on a two bed apartment in the docklands area in Dublin, where properties are moving well but sufficient supply still exists.
A very current example of this is taking place in the Dublin 2 area at the moment, where a well presented two-bedroom apartment was brought to the market close to €400,000. It attracted lots of attention from both home-buyers and investors. The investors remained interested when bidding started below €350,000, however, this sale is now going to tender and the home-buyers involved are putting together their best bids. For the example above, it is known that another two-bed apartment recently sale-agreed at €299,000. It is also known that a three-bedroom apartment in the same area (directly opposite) is available for €395,000 – what logic would place a market value of €400,000 or greater on a two-bed in this area? One buyer I spoke with described the apartment as being beautiful. From the images, I agree. Would I pay an additional €100,000 for shinier finish? Absolutely not. By all means apply a premium for a superior quality finish but it must be proportionate. Buyers must learn what premiums are worth paying for, like a great location, or a great view, or a waterfront apartment- factors that are likely to last. A shiny interior will fade, particularly in a apartment and without upgrading, the premium portion is lost. A slightly less shiny apartment in the same area costs very little to update cosmetically and will yield the same result. Investors know that there is nothing to be gained by paying a premium and so they don’t. Both two-bed apartments quoted in the example above will yield the same monthly income for an investor, so there is no way for them to justify the €100,000 plus price difference. Taking their example, it simply does not serve owner-occupiers well to step so far outside the rules of buying well. In order to call a halt to this type of seller behaviour in the market, buyers must be prepared to walk away.