Selling by Open Negotiation

Disclaimer: These comments are the writer’s own and do not necessarily reflect the current opinions and policies of the Real Estate Institute of Western Australia.

What’s this new Open Negotiation all about and is it as “transparent” as the agent claims?” asked a friend of mine considering a property offered for sale using this method of sale.

Conceived by some local Perth agents, this relatively new approach to offering a property to the market aims to combine the three common methods of sale typically used in WA; private treaty (for sale and accounting for about 95% of all transactions), auction and tender. It works by inviting buyers to participate at any price and once an initial offer is made, that “base” price becomes the listing price. Buyers submit offers with conditions of their choosing in the lead up to a predetermined date of purchase (a little like a tender) whereby registered buyers then bid for the property either manually via the agent or using a smart bit of tech on their smart phone or other device. Buyers are able to make a “take-out” bid (a “happy” price determined by the Seller) at any stage during the proceedings which secures them the property and ends the bidding process. Otherwise, registered buyers simply bid up the price until there’s one buyer left whilst the agent monitors the process with the seller.

“Sounds like an auction,” I hear you say. The method does require a licensed auctioneer to oversee the process so it is a form of auction, although it does (unlike an auction) allow for each buyer to have pre-agreed different conditions of purchase. Under public auction conditions, the terms of purchase, such as deposit amount and settlement terms, should be the same for all buyers participating.

It also differs from the common private treaty “for sale” method of sale by revealing the price of each buyer’s offer to all other participating buyers. Normally, when buyers compete for a property under private treaty, the details of each offer remain confidential, hence the phrase “Transparent or Open Negotiation” used by the proponent of this selling method.

There are advantages of using Open Negotiation including the anticipated low starting price and the ability for buyers to submit offers with conditions of their choosing. Purists espousing the virtues of the auction method argue that it fails to deliver absolute certainty to the Seller and that’s true. It could be the winning buyer’s offer that’s subject to finance approval fails to proceed, for example. And it is possible offers are falsified in order to encourage other buyers to participate, but I think that’s unlikely.

Auction remains the most pure, transparent method of sale but not all buyers can participate in the process and Open Negotiation neatly fills the gap between a private treaty and auction sale.

By Hayden Groves
REIWA President
REIA Deputy President

Leave a Reply