In the tender system, a buyer does not get to see who they are bidding against (if anyone) and submit their best offer in a sealed bid.
Unlike an auction which needs competition to be successful, the tender process only requires one buyer and the agent gets their appearance money by way of the advertising fees. From the buyer’s perspective, the tender process is like a secret maze, it can be a nightmare to navigate.
There is no means of knowing what level of interest the agent has in the property or what the reserve price is unless the agent is willing to help you and why would they?
For this reason, it’s common for the successful tender to be considerably higher than the other bids because of the buyers fear of missing out.
The other alarming aspect of the tender system is what occurs after the tender process has closed.
If the highest bid is not accepted and there are other bidders what happens? Does the agent deal exclusively with the highest bidder, conduct a boardroom auction, and ask all buyers to resubmit their best offer or simply hope that somebody will pay the reserve price?
The answer is all of the above – how confusing for the poor buyers.
REBAA urges homebuyers looking to purchase property by tender to engage a REBAA accredited buyers agent to steer you through this potential minefield or risk paying too high a price.