Should I Sell My House Using For Sale by Informal Tender?

Published on 2 May, 2018

The Benefits and Risks of Setting A Guide Price When Selling Your Home

Should I sell my house using ‘For Sale by Informal Tender’?

A common marketing strategy is to sell your home by informal tender. This means a ‘Guide Price’ is set and written offers are invited via sealed bids. But will this really help you achieve the best price for your property?

Many agents use ‘For Sale by Informal Tender’ as a way of selling houses. There are obvious benefits for all parties – not least because the agent more or less guarantees their client a sale. 

The technique is often used on properties that require work, those that are empty or where a quick sale is needed.

Put simply, a property that requires lots of work on it is worth different amounts to different people. Someone who is going to live there and happens to be in a ‘trade’ might well be able to complete the work for £20k, whereas for someone who is going to have to hire contractors it might cost them £40k. So the property may well be worth more to the first person than the second.

If you’re selling your house and would like experienced, professional advice on how best to proceed with your sale, call the experts at Hatched on 0333 999 7699 or book a free valuation via our website and meet us in person!

‘For Sale by Informal Tender’: How it works.

Typically, an agent will advertise the property with a ‘Guide Price’ and arrange open days for viewings. They will show all the buyers around the house over the course of a couple of hours each time, which can cause an element of competition amongst buyers.

A deadline is set when all offers must be submitted in writing to the agent. Offers are kept confidential until that date, where the agent will open all the offers and go through them with the seller.

If the seller is happy with one of the offers, they will accept it and begin the legal process to exchange contracts. 

Sounds very simple and straightforward, doesn’t it? To be fair, there are huge benefits to selling your house this way. But there are also risks.

The benefits.

  • You can create a huge amount of interest in the property.
  • You can end up with a much higher sale price than anticipated because of the competition you’ve created.
  • You have a date when you expect to agree on a sale on your property.
  • You get a choice of buyers in different positions.

The risks.

  • If you set the wrong asking price and end up with just one or two people each weekend, that’s not the sort of competition that will achieve a high price or even a sale at all!
  • Getting the price right in the first place is absolutely critical – it needs to be somewhere around 10% under what you expect the property to go for to attract the level of interest you need.
  • You may well put off some buyers because they feel like it is a ‘bidding war’ that they are never going to win.
  • The biggest risk is: are you really getting the best price? 

Case study: How a buyer and seller can lose out

A couple sees a property up for sale by tender that they’re interested in. The ‘Guide Price’ is £315,000. They view the property with the selling agent and there’s a huge amount of interest in it. 

Their maximum budget is £400,000, but with around £30,000 of work to do on this particular property, the maximum they would pay for it would be £365,000.

At this point, their biggest question is: “Do we ‘play the game’ and try to out-think the other buyers? Or do we just go to our maximum price?” It’s an incredibly difficult decision, and part of the frustration of getting involved in properties that are for sale in this way is that you don’t want pay ‘over the odds’ – but you also don’t want to lose it.

So they decide to ‘play the game’ and place a bid of £346,000 on the property. They are in a strong position to proceed and have a mortgage agreed in principle for well over this figure, so they are classed as good buyers.

Unfortunately, their strategy backfires when someone else’s offer is accepted. Checking the land registry six months later, they find that the property went for £350,000.

They lost out, but the seller did too. The ‘For Sale by Informal Tender’ strategy cost the seller around £15,000 because our couple was originally prepared to pay £365,000 for the property. But how many other buyers did the same?

The problem in this example is that the ‘Guide Price’ was too low and should have been set at around £330,000, perhaps £335,000. At this price, it would have given the potential purchasers a different idea of what the potential final sale price might be.

All in all, ‘For Sale by Informal Tender’ can be a great strategy, but only for the right properties. It’s vital that you get the asking price right and have a successful open house event.

If you have a house you’re thinking of selling and would like advice on the best way to sell your property, then we can help. Take a look through our competitively priced packages or book a free no obligation valuation and judge Hatched for yourself.

 

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