By negotiation? Tender? Deadline sale? What all those different sales methods mean

When you buy a house in New Zealand there are a variety of sales methods used depending on the area and the market at the time. Advertised price, by negotiation, auction, tender, deadline sale, and expressions of interest, are all common methods - but what do they all mean?

The seller and their real estate agent decide which option to choose, so they’ll pick the method that suits them. It’s not always the best for the buyers though so REDnews has taken a look at what they all mean and some of the pros and cons of each option for buyers.

Buying with an advertised price

Some vendors simply list their property with an advertised price. This method is typically used when the value of a property is well established. It's more common to see outside the main centres but is increasingly seen in slower real estate markets.

Advertised price is a way of attracting buyers who are looking in a particular price range and preventing mismatched expectations. It also allows buyers to make offers with conditions attached such as settlement date, subject to selling the buyer's current property, getting finance from a bank, a satisfactory builder's report, insurance - the list goes on. 

Sometimes you'll see it as ‘offers over’ or ‘enquiries over’ an advertised price - these set the range the seller is operating in.

Pros: You know the asking price, you have time to do your due diligence, you can negotiate and add conditions, you have time to secure finance, and there is no deadline.

Cons: This is the most buyer-friendly method of sale. Inaccurate pricing is the main risk for buyers; don’t be misled into overpaying by an optimistic ‘offers over’ price.

Buying by negotiation

This is the most common method of sale used across New Zealand. A property is not priced, but offered up for sale by negotiation, so buyers must put in an offer for what they are willing to pay. Just like with an advertised price, buyers have the chance to negotiate the price and other conditions on the sale such as settlement date and chattels.

Sellers like negotiations because they are less stressful than auctions, because there’s no deadline – and this also has benefits for buyers. By not specifying a price, sellers haven’t capped what the house might sell for or inadvertently underpriced it.

Pros: The same advantages as an advertised price, except you have to work out the price yourself.

Cons: You have to decide what you think the home is worth, and what you’re willing to pay for it. This means you risk overpaying if your offer is way above everyone else’s. And since you’re in the dark about what the other buyers are offering, a lowball offer might see you miss out despite being willing to pay more.

Buying at auction

At an auction, you bid on a property and – if it passes the seller’s reserve price – when the hammer falls, the highest bidder has bought it.

Real estate agents love auctions because they are definitive: either the house sells on the day or it’s passed in and the vendor’s price expectations can be adjusted accordingly. Auctions are particularly popular in in Auckland and Christchurch, where large populations can lead to busy auction rooms.

Auction sales are unconditional. This suits sellers because if the house sells, there is no waiting on the buyer to sell their former home or get their finance approved. The deal is done.

For buyers, auctions are a lot more work. If you are a serious buyer, you need all your ducks in a row before bidding. This can be stressful, but it does get rid of anyone who isn’t ready to buy. You may pick up a bargain at auction if the market is flat. And if the property is passed in, the vendor may then be ready to sell at a reduced price.

On the downside, in a hot market it’s common for buyers to spend thousands of dollars on due diligence, only for bidding to start above their maximum spending limit. That’s both costly and extremely frustrating, especially if it happens several times.

Pros: Binding, decisive and you might get a bargain. You can also see exactly what other buyers are willing to pay.

Cons: Less time to do due diligence, you need to have your finance sorted out in advance and you have no ability to negotiate or add conditions to your offer. There is also a risk that you might get carried away in a competitive bidding situation and pay more than you planned.

Buying by tender or deadline sale

A tender is a sort of sealed bid scenario. You make an offer for a house, by the due date, and you can’t see anyone else’s offers. On the due date, the vendor opens all the offers and compares them. They can then choose to accept an offer, enter further negotiations, or accept none of the offers. Sale by tender is most popular in Wellington.

A deadline sale (or deadline treaty) also features sealed bids, but the vendor can opt to accept an offer before the deadline. This is an update on the tender process, and deadline sales have been gaining popularity in recent years.

These methods put an end date on a sales campaign, which can create urgency, which agents and sellers tend to like. Plus, they encourage buyers who really love a house to make their best offer. For buyers, with no price transparency on the other offers, it can be stressful trying to pitch your bid just right.

Pros: Unlike an auction, tender or deadline offers can still be conditional – on getting finance approved or sale of your house, for example. You also have more time to do your research.

Cons: There's a risk of overpaying if your offer is far higher than anyone else’s, because you’re really flying blind on what others are bidding.  

Expressions of interest

At the top end of the market, there’s ‘expressions of interest’. This is mainly used on very high-priced homes with a limited buyer pool. The agent will ask you to complete a form showing that you’re interested in buying the house, including a price indication – it’s a kind of non-binding offer. From these documents, the seller will ask a few of the interested parties to submit a formal offer, similar to a tender or deadline sale.

Pros: You have time to do some research and you can add conditions to your offer.

Cons: Again, a major risk of overpaying because you don’t know what other buyers are offering.