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Hate Me Tender

December 8, 2009

So we have found a house we really like (or are mildly interested in, when we talk to the seller’s agent). It is for sale by tender.

Tendering is a particularly noxious process in which you hope you aren’t being a fool, and the vendor hopes you are. If it weren’t for the fact that the place is just down the road from where we are now, with neighbours we know and like, I’d be inclined not to participate. But there you go.

We know the rateable value (it was done in September this year) and we have a report from QV on recent sales in the area (which unfortunately has an unhelpfully wide range). The house is in one of those pockets of Wellington with a very varied geography so it’s hard to make meaningful comparisons with nearby properties.

Any tips on tender strategy, dear readers? High to be sure, low to be cheeky? I lie awake at night thinking about it.

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12 comments

  1. It’s a total lottery. We tendered on a house earlier in the year and were outbid by hefty margin by people who offered way more than we were prepared to. Frustrating, but at least we weren’t outbid by $500 or something – that would have been equally galling. All I can say is try not to let it stress you too much: if you don’t get this one, there will be another one along in a wee while, and it’ll hopefully be a nice civilised PBN.


  2. I’ve always found that if you make a respectable offer (ie. what you can afford and think is fair), then you can stick to your guns on it. Don’t show the agent any flexibility. Well, that has worked for us in our negotiations, in that from that point you don’t really negotiate much at all.


  3. Having made offers on at least 7 other properties before finally succeeding in getting our current house, all I can say is that there is a correlation between success and desparation. We pretty much just threw all our money at the vendor in the end, which is what the successful folk had done on all the previous tenders that we’d missed out on. Eventually you’ll be the most desparate in the bunch and will be successful. Admittedly that was at the height of the property boom in 2004, so it might not be quite as bad these days.

    You’ll get a feel for the market after a while and get a better handle on what a property is worth. And don’t forget that it’s not all about the dollar amount, but also the conditions. The fewer conditions you have the better and as first-home buyers you’re in a stronger position as you don’t have to make the sale conditional on the sale of your current house.

    You have my sympathies – it is horribly stressful. But rest assured if it doesn’t happen this time, there will be other houses out there that will also be good. For us it was eighth time lucky and we ended up with the house that probably best suited us.


  4. I’d figure out the percentage above/blow RV houses in the area sell for and base your final offer on that figure. I suspect this is basically what valuers do.

    As for strategy. I’ve always gone in low and negotiated up to what I believe the property is worth and then made it clear I’m not going to go higher.


  5. I thought about making a cheeky low bid when we tendered earlier this year. We decided against it. We lost, as Heather notes, but by a fair bit. And at that we were third out of ten tenders. Many of those seven lower bids were presumably being a bit cheeky – also known as “wasting your own time”.

    When we bought our house, there were about five serious offers on the table within a day of the first open home. One was head and shoulders above, so we took it. Reflecting Judi’s comment, the people who we’re selling to had offered on 12 other homes prior to us, so came into the negotiation with serious motivation to not lose another one.

    Which is to say: if it’s a good home, there seems to be a fair bit of demand out there at the moment. Do not count on getting results with a cheeky low bid. If you actually want the house, make an offer you think is fair. If you don’t really want the house, why are you bothering to submit a tender?


  6. Boycott closed tenders, seriously. They’re not in anyone’s interests and participating in them is just encouraging the assholes.

    With that disclaimer out of the way, all you can do is offer the most you’d be willing to pay and see how it comes out. A friend of mine (and former co worker of yours) has been going through this process recently. Basically every time some nutjob offered a huge premium over other bidders.

    If you’re interested in fossicking around in game-theory papers for an evening you’re dealing with a sealed-bid first-price auction.


  7. We’ve missed out on two houses with closed tenders, and it’s heartbreaking. The first we tendered for more than the RV which we thought was fair, but had conditions, and the house went to someone with a lower tender but no conditions. In some cases with low tenders, the vendor just wants to get rid of the house with the least amount of fuss, so if you can keep your conditions to a minimum, you should hopefully do better. We get a reliable builder to come and kick the tyres and see if it’s necessary to get a builder’s report done rather than just put that on the conditions.
    That said, we are still renting, so what do I know?
    All the best!


  8. You people are so sensible. This is all very helpful in clarifying our thinking.

    Another piece of advice we’ve had today is “what figure would piss you off if it beat you?” Eg, if you’re pissed off to be beaten by 10K, maybe your limit is really 10K higher.

    So what we are doing, in sum, is:
    – figuring out fair value as best we can. In a stroke of luck, I found out what the tenants are paying, so working out what the value would be based on a 7% yield helped provide another data point.
    – added a modest premium up to the “wouldn’t piss us off to be beaten by this” level
    – figured out the minimal level of conditions that keeps us safe. Eg, we need a valuation, but we’ve arranged to get one done in 3 days.

    If we win, yay, if we lose, we won’t cry. I guess every bidder but one is going lose any given tender.


  9. Update
    ======

    Agent: I’m ringing to tell you that you didn’t win the tender.
    Me: Ah well, I guess only one party can win a tender.
    Agent: Actually, nobody won — the owner was expecting more… [significant pause]
    Me: ORLY?
    Agent: Yes, more in the mid fives… [pause]… so…
    Me: That is out of the question. I don’t even have to consult with Kathy to tell you that.
    Agent: Oh. Well, I’ll be in touch if there is any news later.
    Me: You do that.

    Obviously no nutjobs amongst the bidders this time — the vendor, on the other hand…

    Thanks again to all for your thoughtful advice. We’ll feel much better armed for the next one.


  10. Oh, just thought of something else. The only condition we’ve ever put on our offers has been “subject to finance”, finance is usually dependent upon valuation etc, so it kind of covers all bases but makes it look like you don’t have many conditions.

    And don’t hold it against the vendor. We had many an agent tell us we were asking too much for our bach, but by sticking to our guns we got exactly what we wanted/knew it was worth. We waited for the nutjob, and ended up a lot richer for it.

    It is true what they say, usually the right house comes along.


  11. dude. newlands! water’s warm.


  12. Sorry, a bit late posting on this one. I used to be a real estate agent and I agree, tenders are the hardest way for a purchaser to buy because it’s a blind auction and there is no way to get a measure on how competitive you’re offer is until it’s too late.
    The best reason a vendor would choose to market/sell their property using the tender process is when they know of a purchaser who wants their property and may be willing to pay much more than any other “normal” buyer out there. They can’t price it because they may be putting a cap on what that wealthy buyer might be willing to pay and miss out on the extra cash and if they do price it high it will put off the “normal” buyer because they know it’s overpriced (buyers aint silly). They won’t go to auction because they know the “normal” bidders won’t push that particular wealthy buyer high enough and it is illegal to place phantom bids unless the auctioneer declares it to be a “vendor bid” to the room.
    Often vendors who tender either have the above in mind or are unrealistic – real desparation and most vendors go to auction for the exposure to a wider market through a planned marketing campaign to “guarantee” a buyer on the day or price their property slightly under market value to encourage a multi offer dutch auction.

    Personally, nothing has changed in our banking and lending regulations or property taxation to make me think that NZlanders aren’t all just going to jump on the property investment band wagon again and cause another crash, we can already see this in the “good news – the property markets are recovering” stories in the media and the RE agencies only ever talk it up with positive sound bites in their local papers. I get the feeling in my gut it won’t be long before we see it all come crashing down again. This recent crash may have only been the bounce, but I’m no ecomonist or crystal ball gazer, what would I know?



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