Friday 24th December 2021 from 9am

Hours
Minutes
Seconds
LIVE ON RADIO 4CRB:
What Lawyers Experience at Christmas Time
Featuring: Legal Practice Director, Jeff Garrett

The silent auction: an alternative method of selling real estate

News

Selling property can be a stressful and emotional process for all parties involved.  There are many ways to sell a property.  Public auctions where the highest bid wins, are most common in Melbourne, Sydney, and increasingly, in Brisbane.  A less common, but highly effective sales strategy is the silent auction.  Attwood Marshall Lawyers Property and Commercial Lawyer, Andrea McGarry, discusses the risks and rewards of silent auctions.

Introduction

Silent auctions, also referred to as tenders, as opposed to public auctions, are conducted through bidders privately sending their offers to the real estate agent. Ultimately, the highest bidder wins the property, same as a public auction, however, the value in this strategy is that it often elicits a higher price being put forward from the start.

In a silent auction, bidders are forced to offer the highest possible price they are willing to pay, knowing that they are competing against other bidders. But unlike the drama that can unfold during live auctions, bidders are unaware of what other bidders will offer during the process. This means that they must put forward their highest offer at the earliest opportunity to remain in competition.

Further down the track, once the agent has received all submitted offers on the property, they review these with the seller. At this point, the seller has three real options: they accept one offer and proceed with the sale, they reject all the offers and continue trying to sell the property, or they reject all the offers and withdraw the property from the market.

How is a silent auction different from a traditional auction?

In a typical auction situation, the auctioneer runs the show, and registered bidders correspond directly with them or their bidding agent to submit their offers. It’s often a big spectacle with emotions running high for buyers eager to secure the property on the spot. The event is usually held on-site. Houses being sold by auctions are on the rise, however, due to the COVID-19 pandemic,  the on-and-off restrictions over the past 20 months have made live auctions a little unpredictable, with auctions and open homes banned during lockdown periods or conducted online.

A silent auction, on the other hand, is sometimes held over two days. It usually kicks off after the first offer is received, which alerts other interested parties to make their competing bid. Rather than an auctioneer steering the bidding war, the sales agent corresponds directly with individual bidders, and negotiates with each buyer privately.

After the closing date, the vendor will choose the winning bid. The vendor can then either sign an unconditional contract or enter further negotiations with the most favourable offer, whilst the chosen bidder is mindful that there are likely several other offers capable of acceptance in the background.

Silent auction advantages

There are many potential advantages to selling by silent auction (or tender), including:

  • As there is no listed selling price, buyers cannot compare your property to others on the market. The sale price of the property is usually kept secret, so complaints about an overpriced property are less likely.
  • With all bids kept confidential, potential buyers cannot base their offer on what others are bidding. This can lead to the winning bid being significantly higher in price than other offers. The amount of offers may far exceed the seller’s expectations.
  • The seller retains control over the selling process. They don’t have to accept the highest offer but knowing this figure can also open the door to future negotiations.
  • Sales and marketing efforts can be optimised with an intense campaign that aims to put the property directly on buyers’ radars, to make them aware of the home’s existence before the closing date. This specific closing date also means that sales and marketing campaigns don’t last for long periods of time, which can save sellers time and money.
  • For sellers who don’t have a clear idea of what the property is worth, this bidding process can help indicate a true market value. This is useful for unique properties that don’t necessarily fit into the market and it where it can be difficult to find a direct comparison to other properties.
  • If there are several bidders who are interested in the property, the competitive nature of the bidding situation can cause them to offer higher than they normally would.
  • Another advantage that a silent auction has over a public auction is that it only requires one interested party, whereas a public auction requires at least two bidders to drive up the price. Sellers also tend to feel less pressure when they are selling by silent auction, because they don’t need to make immediate decisions on the spot like they would in a public auction.
  • A silent auction process tends to lead to higher bid prices than public auctions, because in public auction the highest bidder will stop bidding once the weaker bidder quits. In a silent auction, there is no point when this can happen. The highest bidder will have to throw out the highest price they’re willing to pay, because they don’t know what others are bidding. There is no ceiling price that can be put on a sale by silent auction, meaning that the sky’s the limit when it comes to the potential price of a property and will come down to what someone is willing to pay.

Silent auction disadvantages

There are numerous potential benefits to choosing the silent auction process, however there is also a certain degree of risk involved. To minimise this risk, it’s helpful for sellers to select a real estate agent who has lots of experience with selling by silent auction. Sellers will also need to consider the following potential disadvantages:

  • The confidentiality provided by this selling process can drive up bids, since the buyers are unaware of what their competitors have offered. However, this can also backfire and lead to lower bids than the expected sale price because buyers will have no idea of the property’s true market value.
  • If the bids submitted are unsatisfactory, negotiating with the interested buyer can be a long and drawn-out process, taking a longer time than the seller may initially had hoped for.
  • Because the advertising campaign is often shorter than for public auction or sale, it’s possible that fewer potential buyers are made aware of the property.

Legalities of silent auctions

When there are multiple buyers under private treaty – converting to either a “Sale by Tender Method” (where buyers get one opportunity to put forward their most competitive offer and once the vendor makes their final decision on a specified time and date, the decision is announced) or “Silent Auction Method”, makes perfect sense to avoid engaging in misleading and deceptive conduct.

As previously mentioned, the auction is “silent” in that there is no auctioneer selling the property and bids are submitted confidentially. After each pre-determined round, the agent announces the highest bidder. Bids continue to escalate in subsequent rounds. At the end of the final round, the highest registered bidder is the purchaser.

There are variations to silent auctions which may include sealed bids. The highest bidder pays the price he or she submitted. However, the capability of inducing bidders into error or refusing to disclose any competing bid relevant to the decision of the other party, would likely lead to an allegation of misleading and deceptive conduct. All agents must engage in full disclosure, but set pre-determined bidding increments at the start, to avoid non-genuine bidding on the day.

It is important to point out under the standard sales agency agreement, that services detailed in the agreement can be varied providing it is in writing and signed by both parties. Furthermore, the definition of an “auction” under the Property Stock and Business Agents Act 2002 refers to the person who claims the property submitted for sale at a certain price is named by the person acting as auctioneer. As with silent auctions there is no auctioneer. This gives real estate agency businesses the flexibility to draft terms and conditions that are not based on the unnecessary and unproductive rules of public auctions – only laws applicable to contract law and consumer law.

How can Attwood Marshall Lawyers help?

Buying and selling property can get emotions running high. It is important to have a proper understanding of the sales method and what rights and obligations you have whether buying or selling at auction, tender, on the public market or privately. 

Parties should be careful in buying at auction and should seek legal advice from a property lawyer before the auction to protect their rights and understand what will be required of them if they place a winning bid.

Attwood Marshall Lawyers are a leading property law firm and have helped buyers and sellers achieve successful property transactions for over 75 years. For legal help with a conveyance or general property law advice, contact Property and Commercial Department Manager, Jessica Kimpton on 07 5506 8214 or email jkimpton@attwoodmarshall.com.au or call our 24/7 phone line 1800 621 071 today.

Read more:

Be careful what you bid for! What happens when auctions go wrong…

NSW house hunters encouraged to get ready – auctions brought forward over fear of second wave of COVID-19

Don’t let your fear of missing out (FOMO) stop you from doing your homework and getting the right legal advice before you sign up to buy!

 

 

 

Share this article

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on print
Print
Share on email
Email

Contact the author

Download a Brochure

Please enter your details below and
a link will be emailed to you
Download Form

Compensation Law

Select your state