Buyers Sealed Bid Survey
Comparison of Private Treaty, Auctions and Sealed Bid Sales
The purpose of the chart below is to compare The Sealed Bid as conducted by Great Southern Land to the traditional Private Treaty Method and the Public Auction Method of sale. Some of the advantages and disadvantages that we see for sellers and buyers follow:
Terms / Private Treaty / Public Auction / Great Southern Land Sealed BidAsking Price / Property is normally offered with an advertised asking price, although properties are sometimes offered for sale with no price. Buyers are reluctant to make offers by private treaty on properties that are not priced. / There is no price until the bidding begins at which time a starting bid is submitted and multiple raises are solicited by the auction crew. In some cases auctioneers solicit a starting bid before the auction. / Normally there is no asking price advertised, although sometimes there is a minimum acceptable price, sometimes referred to as a “Strike Price” advertised.
Offer Deadline / There is no advertised deadline for accepting offers. With no deadline, many buyers will stall indefinitely to see what other interest there is in the property. / There is an auction day set at which time all offers in the form of raised bids are accepted until there are no more raises. / There is a sealed bid deadline after which no other offers will be considered. Each bidder is given one opportunity to submit his top offer. If the high bid is less than the reserve price, the high bidder is given first opportunity to purchase at the reserve price.
Offer Negotiation / During the marketing period offers are made, countered, accepted and rejected. The negotiation may take place between a single buyer and the seller or there may be multiple buyers. There may be multiple offers being negotiated at one time and one buyer’s offer may be used to drive up another buyer’s offer. / The negotiation is between two or more bidders in an open forum. Some buyers, who wish to keep their business private, are not willing to bid at auction. There may also be a reluctance to bid when neighbors or friends are both interested in the same property. / The negotiation is between each buyer and a group of unknown buyers. Since the bid is submitted in a sealed envelope and normally opened in private, we do not have the problem of buyers not bidding because of privacy issues. Also, confrontational, face to face, bidding between neighbors and friends is avoided.
Sale Period / Normally the sale period begins when the property is listed and ends when the listing and any extensions thereof expire. / Normally the sale period begins when the property is listed and ends shortly after the auction. Auctioneering companies are not normally set up to sell any property not sold at auction in follow-up sales by private treaty. If the auction was “Absolute” then there are no tracts left after the sale. If the auction had a reserve the seller may have a group of less desirable parcels left with no one interested in marketing them. / Depending on the property we may break the sale period into the following 3 parts:
Pre-emptive Period: A period of time before the Sealed Bid Marketing begins known as the Pre-emptive Period. The Pre-Emptive period commences with the commencement date of the listing and ends on a date agreed to by the seller and GSL. The decision to use a Pre-emptive Period is discussed with the owner who makes the final decision.
Sealed Bid Period: A period which begins at the end of the “Pre-emptive Period” and ends when negotiations with bidders from the sealed bid are completed. This period may have different termination dates for different parcels based on the activity of the bidders.
Post Bid Period: A period which begins at the end of the “Sealed Bid Period” and extends through the expiration of the listing agreement and any extensions. This period may have different starting dates for different tracts based on the activity of the bidders. During this period we offer any parcels that did not have acceptable prices either at the sealed bid or in the follow-up negotiations with bidders. The parcels are offered by private treaty to the list of prospects generated from the sealed bid advertising and to new prospects. We do not leave the seller hanging with a group of less desirable parcels and no marketing.Terms / Private Treaty / Public Auction / Great Southern Land Sealed Bid
Commission Rates / Commission rates are negotiated between the seller and the listing agent. Commissions are normally a set percentage of the sales price accepted. Since commissions are negotiated, they may be different at different sales prices or dependent on the number of agents involved in the sale. / Commission rates are negotiated between the seller and the auctioneer. Since auctions normally require the participation of an auctioneer and staff of people, the commission rate is usually higher than a typical private treaty commission rate for the same property. Often all or part of the commission is included as a part of a “Buyer’s Premium” which is added to the final sales price and paid by the buyer. I have seen “Buyer’s Premiums” at auctions from as low as 5% to as high as 15%. Most auction companies charge at least a 10% “Buyer’s Premium”. / Commission rates are negotiated between the seller and the broker. Sealed Bid Sales require an extensive preparation and amount of preliminary “due diligence” before the “Invitation To Bid” is mailed to the prospective buyers. In most cases we use a rate schedule based upon the period in which the property sells. We may have a lower rate during the Pre-emptive Period when we have done less work and spent less in advertising and a higher rate for the private treaty sales efforts necessary during the Post Bid Period.
We normally include a “Buyer’s Premium” during the Sealed Bid Period. The amount of the “Buyer’s Premium” normally runs from 5% to 8%. This is added to the final BidPrice and paid by the buyer. We use the “Buyer’s Premium” to pay a broker representing the buyer, reimburse the owner for any expenses incurred in preparing the property for sale and advertising expenses based on our agreed upon budget. Any excess of this fee is split between the owner and GSL.
Terms / Private Treaty / Public Auction / Great Southern Land Sealed Bid
Due Diligence / If the property requires extensive and expensive “due diligence” by a buyer, most buyers will not purchase unless they can tie the property up at no cost while performing their “due diligence”. This is equivalent to an option with no consideration and removes the property from the market. / Normally no offers are accepted before the auction date. This allows each prospective buyer an opportunity to perform his “due diligence”, which can be quite costly, without fear that the property will be sold to another buyer before he has an opportunity to participate in the auction. This allows multiple buyers to look at the property at the same time. / Normally no offers are accepted before the sealed bid deadline. This allows each prospective buyer an opportunity to perform his “due diligence”, which can be quite costly, without fear that the property will be sold to another buyer before he has an opportunity to submit his bid. We commonly perform a series of data gathering that could be described as preliminary “due diligence” but our formal documents always place the burden of performing the “due diligence” on the buyer. This time frame from the end of any Pre-emptive Period through the Sealed Bid allows multiple buyers to look at the property at the same time without fear that it will be sold before they have an opportunity to submit their offer.
Terms / Private Treaty / Public Auction / Great Southern Land Sealed Bid
Parcel Sales / Normally an entire tract of land or several parcels of land are offered for sale. Sometimes an entire tract is offered with the advertising saying “will divide”. Many sellers will not sell individual parcels until there is a buyer identified for each parcel. This leads to contracts that are contingent on receiving acceptable offers on other parcels. Also, the seller often reserves the right to cancel a contract on a parcel or several parcels if he receives an acceptable contract on the whole.
Buyers are reluctant to enter contracts with the type contingencies that sellers require. A buyer with a contingent contract on a parcel may lose his purchase when another buyer for the entire tract appears. / The property is usually identified and offered as multiple parcels, then offered at auction on a per acre basis with the high bidder per acre for each round of bidding choosing one or more parcels. This often leads to the high bidders in the first few rounds of bidding choosing the most desirable parcels. Bidders must make decisions on what they will or will not take in a very short time while a member of the auction team is urging them to include parcels they may not want.If too many parcels are offered for the number of bidders present, the end of the first round of bidding may result in very low values for a group of parcels.
There is normally a second round of bidding in which the individual parcels and parcel groups can be broken or combined into new groups with a minimum increase (normally 5%). The seller is hoping any low parcels from the first round of bids will be combined with higher price parcels to bring up the overall sales price which may or may not happen. Also, some knowledgeable buyers wait until the second round of bids before bidding which they hope will result in low starting prices for the second round bidding.
There may be another grouping and this process may continue for quite a while. / The property is usually identified and offered as multiple parcels, groups of parcels and as a whole. Combinations of parcels are normally grouped contiguously in a manner to minimize the need for easements over other parcels. Each bidder knows exactly what parcel or combination on which he is bidding. Bidders have plenty of time in the privacy of their office to decide which parcels are right for them.
Only the grouping of tracts as advertised in the initial bid package are accepted. The property is not put up for another round of offers. Bidders may enter multiple bids for one or more 1) individual parcel, 2) combination of parcels or 3) the entire tract.
Buyers know they need to put their top value on any parcel, combination or the tract in entirety if they do not want to lose the opportunity to buy.
Terms / Private Treaty / Public Auction / Great Southern Land Sealed Bid
Absolute Sale / Sellers are not normally obligated to sell properties offered for sale by private treaty at any price before they have signed a contract of sale.However, they would owe a commission if an offer from an able buyer meeting the terms of the listing was turned down. / Most auctioneers encourage the seller to offer each parcel for “Absolute Sale” which means the seller must accept the high bid on each parcel, parcel group or the entire tract. The rational is that an “Absolute Auction” will attract more bidders. Many of the bidders that come to “Absolute Auctions” who would not have come anyway are only there for extreme bargains. Their presence does not necessarily lead to higher sales prices.
Another benefit of an “Absolute Auction” is that each bidder knows that if he can bid more than the other bidders he will buy the property. Therefore, bidders may bid more in the first round bids in hopes of locking in a parcel that may not be combined with other tracts in the second round. Bidders in the second round know that they will buy the property if they are willing to pay more than the other bidders.
The alternative to an “Absolute Auction” is the “Reserve Auction” where the seller sets a minimum sales price for each parcel and the entire tract. Many auctioneers will not require the seller to set the reserve before the auction. They will hope the high bid will be enough that the seller will agree to accept it. If there is not a reasonable reserve price set before auction, a buyer who has made a good faith market bid may be denied the purchase of a tract. / We have never used an “Absolute Sale” in our Sealed Bids. Our bid forms have a clause that says: “The Seller reserves the right to reject any or all bids, and theright to waive any defects in any bid.” Not only does this allow us to reject low bids, it also allows us to accept a high bid that has a term different from the terms we have advertised. For example, we may have received a bid with a contingency that is much higher than the second bid. The owner would then be legally able to accept the bid with the contingency.
Terms / Private Treaty / Public Auction / Great Southern Land Sealed Bid
Absolute Sale Continued / A third alternative is a sale with some parcels offered “Absolute” and others offered with a reserve. This helps auction attendance but may lead to problems in the second round bidding. Recombining Absolute and Reserve parcels would not be allowed except with the owner agreeing to change the reserve property to absolute before offering the combination.Combining of parcels in subsequent rounds of bidding is more effective if all parcels are offered “Absolute”.
Page 1