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Key differences between a tender agreement and an auction agreement

In New Zealand, the process of purchasing land can involve different types of agreements, and two common methods are tender agreements and auction agreements. Set out in this article are the key differences between the two.

Tender agreement:

  • Definition: In a tender agreement, prospective buyers submit sealed written offers for the property by a specified deadline.
  • Confidential Bidding: Prospective buyers usually do not know the details of other participants’ bids, as the process is confidential.
  • Flexibility: Sellers may have the flexibility to negotiate with the preferred tenderer after the tender closes.
  • Conditions: The terms and conditions of the sale, including the settlement date, deposit amount, and any other specific requirements, are outlined in the tender documents. Prospective buyers can insert conditions into the tender agreement, for example, making the tender agreement conditional on the prospective buyer obtaining finance to complete the purchase.

Auction agreement:

  • Definition: An auction agreement involves the public sale of the property, where interested buyers openly bid against each other.
  • Transparency: Bidding is transparent, and participants can see the competing bids in real-time.
  • Competitive Atmosphere: The competitive nature of auctions can lead to a higher selling price if there is strong buyer interest.
  • Conditions: The terms and conditions of the sale, including the settlement date and deposit amount will be set out in the auction agreement. Typically, an auction agreement will have no conditions and if you are the successful bidder at the auction, you will be required to pay a deposit on the day of the auction, usually 10% of the purchase price, and to complete settlement on the settlement date. A purchaser will need to have completed all their investigations about the property prior to the auction and ensure that they have the funds available to pay the deposit and to complete settlement.

Key Considerations:

  • Competition: Both tender and auction processes can attract competitive bidding, but the auction format often fosters a more immediate and visible competition.
  • Seller Control: The seller has different levels of control in each process. In a tender, the seller can negotiate with the chosen bidder, whereas in an auction, the final sale is made to the highest bidder when the hammer falls.
  • Timeframe: Auctions typically have a fixed date and time, providing a clear timeframe for the sale, while the tender process allows for more flexibility in setting the deadline.
  • Due diligence: Conditions can be inserted into a tender agreement prior to a prospective purchaser submitting the tender which would allow a prospective purchaser to complete their investigations into the property once the tender is accepted.  However, any conditions inserted into a tender agreement may make the offer less attractive to the seller.

It is important for buyers and sellers to carefully review the specific terms and conditions of the tender or auction agreement, as they can vary. Legal advice should be sought to ensure a clear understanding of the obligations and implications associated with each type of agreement.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Annette Edwards - Harkness Henry Senior Associate

Annette Edwards

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