Types of Property Sale
A property in New Zealand can be placed on the market in a variety of ways. The type of marketing and sale chosen can indicate how motivated a vendor is to sell. In ascending order of motivation to sell, the sale types are:
- Property not being marketed
- Offers being sought
- Sale by negotiation
- Asking price given
- Buyer Enquiry Over $
- Auction (by owner)
- Auction (mortgagee sale)
There are other factors which can indicate how motivated a vendor is to sell, such as how much information the vendor is providing on the property. This information could include a builder’s report, a Land Information Memorandum (LIM) and valuations (to name a few).
I will focus on numbers 3 to 6 above as they are the most common sales on the market.
- Sale by negotiation is essentially a vendor listening to the market for what offers their property will get, in light of the current market and the property’s current condition. The vendor invites people to view the property and to make an offer once the potential purchasers have a feel for the property’s value. This process is generally low-pressure with a relaxed approach. This approach is generally indicative that the property’s owners expect good value for their home and will not sell unless they receive an offer that reflects what they feel their home is worth. Depending on the desirability of the property and the owner’s expectations of price, these properties may be on the market for longer than others.
- Properties with a specific asking price naturally expect offers to come in at around that price, however sometimes these prices may be well above or below a realistic value of the property. These vendors tend to be a little more relaxed about when the property sells and, much like Sale by Negotiation vendors, are willing to wait until they receive an offer that is in line with their own view of what the property is worth.
- Tenders are a common way to have a property marketed aggressively with open homes and advertising, followed by a deadline for purchasers to submit their offers. Depending on the particular tender process, the vendor’s agent or solicitor may have draft tender documents for purchasers to fill out with prices and conditions. After the tender closes, the offers are presented to the vendor at the same time for consideration. If the vendor has to accept one of the offers, the vendor’s agent or solicitor will notify all tenderors whether their tender was successful. In some cases, more than one tender may be accepted where there is a “winning tender” and a “backup offer”. This situation requires that each contract reflect the circumstance and that they are amended accordingly.
- Properties advertised as Buyer Enquiry Over indicate that a vendor has set a value under which they will not consider offers. In practice, this may be a soft limit and if the property has not received many offers, the vendors may consider offers under (but very close to) the stated price limit.
- Auctions are different to the above types of sale. They are completely transparent and each bidder can see how the price increases incrementally, and how many people they are competing with. When purchasers bid at an auction, their bids are for unconditional prices – this means that once the auction closes, the winning bidder must pay a deposit immediately after the auction (unless the reserve price has not been met), and is contractually bound to complete the purchase of the property on the settlement date. It is absolutely essential that all bidders to an auction have completed their research on the property prior ot the auction, such as obtaining a LIM and Builder’s Report as well as arranging finance and insurance to name a few.
In summary, how a property is placed on the market can determine the behaviour of purchasers and vendors alike. The method of sale is therefore a good indicator of how motivated a vendor is to sell and (sometimes) how much interest there is in a property.
I will discuss the less common forms of sale during my next updates, and point out a few things to look out for when looking at those particular types of sale.