Going once… Going twice… Not sold..?
We have seen a new phenomenon rising in 2016 that is taking the sale of apartment buildings into one of the oldest forms of buying or selling goods and services..the auction. Originally established in 500 B.C, some brokers have rebranded this ancient method of bidding as a modernized way of achieving higher values. One of the reasons this strategy has developed, in this rapidly increasing market, is a fear by Real Estate professionals of under pricing properties. In principle this old method does have some merits that can be beneficial for specific types of properties and should be considered when determining the best way to generate top dollar for your investment, but not as often as the process is being used.
Why Tender?
Not having an asking price on a property does come with some benefits. Firstly, there is no price expectations established to the Buyer, they must compete on what will be a good enough offer to beat out the competition. In a efficient and well environment, an experienced investor will do extensive research to determine value. They will use previous comparable factors, that ultimately reflect what they believe is the true value of the investment, and will submit offers accordingly. However, this approach takes time to understand all the important data needed when comparing investments. On the other hand an unsophisticated investor competing in a tender will use a more emotional vs logical decision making process. In a hot market the experienced investor will not have time to complete the same level of due diligence they normally research and must make a more rash decision in order to be competitive. This can drive prices to levels that are above what a professional may consider top of the market as it may go beyond a relatively rational value for the investment.
Why not to tender
Not having an asking price on the property does not always mean more money. Having a well researched and properly valued building will generate strong interest from all sectors of the market. If purchasers feel the price is within reasonable expectations they will make an offer accordingly. When utilizing a bidding format, If the initial offering does not get the anticipated response the property can languish on the market. Once the excitement surrounding a new listing wears away the decision moves to a purely rational one. Without an official asking price these investors will likely come in lower than what the seller’s pricing expectations, as there is still the emotional investment to the Seller. This can cause your investment to go through multiple bid dates with excessive disruption to the running of the property, eventually being remarketed with an official asking price. Furthermore some investors who are willing to pay top dollar for specific areas will not compete in a tender scenario. We recently sold a concrete highrise in West Vancouver where the Purchaser was explicit in the fact he would not bid for the property.
Should I tender?
Tendering is effective for flagship properties that are considered more of an emotional buy instead of a rational one. These types of investments have extra sentimental value to certain buyers, which may lead to a price beyond the owner’s expectations. It is important to note the rarity of flagship properties will generally ensure multiple offers using either method. Flagship properties are buildings that are unique, such as having waterfront locations, concrete construction, unobstructed views, etc. Overall deciding the best way to obtain the highest value for your investment should be discussed with your Real Estate Professional who can explain the pro’s and con’s of each associated with your specific property and utilize the best way to leverage the unique strengths of your asset.
