The offer’s on the table

VICKI HOLDER consults the experts on what happens when offers are made on a property prior to auction or tender.

In a busy real estate market when demand for property outstrips supply, it's common for purchasers to make offers prior to auction or tender.

Some offices sell a large proportion of their listed properties before the auction or tender date. Others, especially the central Auckland agencies, which are known for their strong pro-auction stance, encourage their vendors to hold out to maximise the competitive pulling power of the auction room.

Both vendors and purchasers should be aware of the process and make sure they're prepared, in case they become involved in making multiple offers.

An agent wouldn't be doing their job properly if they brought just one offer to the table. Once a single purchaser has set the ball rolling, so begins the process whereby the agent elicits several offers to present to vendors. It's rare that a vendor is confronted with a single offer.

In multiple offer situations, the auction or tender reverts to a 'sale by negotiation' process and similar rules apply. These Real Estate Institute of New Zealand rules are designed to protect both vendors and purchasers. They also safeguard the reputation of the agency.

The rules state that agents must treat all parties fairly in their negotiations. If a purchaser wants to present an offer, then the agent must let the vendor know. All interest must be conveyed in a timely manner. As the vendor's agent, the agent must do his or her very best for the vendor - which means achieving the best price and terms for the property.

Most real estate offices have a policy that governs the way they handle multiple offers. Simon Damerell, co-owner/manager of Ray White Damerell Earwaker Real Estate in Ponsonby, says as soon as one of his sales consultants has buyer interest in a property, they tell him and he registers that interest. When there's a definite offer tabled, Damerell calls all the salespeople who have registered interest and informs them, without divulging any of the details, so they can submit their offers as well.

"Confidentiality is essential," says Damerell. "Under no circumstances are the details of an offer made known to other salespeople or purchasers."

Ann McDonald, a sales consultant with Ray White Damerell Earwaker, adds it's up to the vendor whether or not they want to look at pre-auction offers. "I like to think my vendors are in control," she says. "But if they ask, and there's a lot of interest in the property, I say they're better to take it to auction. The reason they may want to look at offers prior might be they've seen something else they want to buy or they want the sale to be done quickly."

She tells purchasers if they want to make an offer it has to be good enough to stop an auction.

"There's no point in thinking "we might get lucky". It has to be at least of market value or there's no point."

If the vendor decides to proceed, Damerell will present all the offers to the vendor, alongside the listing agent. "We get each purchaser to sign a form stating they know they are in a multiple offer situation, that this is their best offer and they may not get a second chance to negotiate," he says. "It's designed so nobody can come back and say they would have offered more if they'd known."

The process is set up to ensure potential purchasers are not led to believe that there will be no other offers. And an agent's self-interest can never take precedence over the vendor's best interests.

"Our focus is to put purchasers against purchasers, not the purchaser against the vendor. Of course, the best way to achieve that is in the auction room. The auction can pull the absolute tops.

"There's nothing like a public forum to pitch purchasers against purchasers. You never know how far it will go. But in the absence of an auction, these rules are designed to achieve the same result. About 15 per cent of our auctions sell prior."

Denise Pollard, of Harcourts, Remuera, sells at least 50 per cent of her properties prior to auction and most of these have multiple offers on them. She prepares purchasers for the likelihood of multiple offers from the moment they show interest in a property.

"If a multiple offer comes in and a prospective purchaser isn't prepared, they can panic," she says. "The auction might be in two or three weeks and it seems like they have plenty of time. But in this market, they need to have their finances organised and be cash buyers."

Pollard pre-negotiates with purchasers, asking them for a figure they would be comfortable paying. She also gets them to come up with another figure, which might make them squirm a bit, but which they'd be prepared to pay at a squeeze.

"So when I get to the vendors, they know I've worked on their behalf prior to getting there. They know when I bring them an offer, it's all or nothing."

When agents present offers, vendors either accept one of them or reject them all. Agents advise their vendors not to counter-sign these offers prior to auction as that gives away the vendor's reserve.

The ultimate aim is the same whether selling prior, under the hammer or after the auction - to gain a premium price for the vendor.