…and why we dislike ‘best and final offers’
In our view the best and most transparent form of sale is an auction. Everybody can see what is going on: the contract is exchanged so the buyer goes home knowing he has bought a property with no danger of a gazump. Sadly, however, modern day selling agents have forgotten how to run an auction. That is if they ever knew how. Too often they ask for a best and final offer which doesn’t help anyone, is bad selling and often ends in gazumping.
Sellers pay their agent to negotiate, anybody can ask for a best and final offer on a certain date – where is the skill in that?
The selling agent’s job is to advise their client on the best method of sale. So without auction what’s left? Take your pick from Tender or Informal Tender – more commonly known as ‘best and final offers’ – or Private Treaty which essentially means negotiation over the telephone.
Luckily we don’t often get asked for best and final offers at the top end of the market but we can’t say it never happens. An important part of our job is to negotiate and just telling a client to write a number on a piece of paper and then pray it is enough is not negotiating. We will take a professional view on the amount to win which is often based on percentages and our many years of experience, but it is a bad form of business.
Back in the 70s and 80s, when the senior members of the Haringtons’ team cut their teeth, it was usual for country houses and estates to go to auction. There was a time when agents would place a house in auction, almost by default, unless they knew it wouldn’t sell well. But it rarely happens now.
How it used to be done: clear and transparent, like the art market
Typically with an auction, an agent would produce an auction brochure which contained the contract, and would run a campaign for about five weeks.
But not only was going to the auction room a clear and transparent method of sale – as with the art market – it also meant the contract was prepared in advance and when the hammer came down the deal was done and both seller and buyer knew it was ‘done and dusted’ with no danger of a grumpy under bidder throwing a spanner in the works with a higher offer.
The nightmare of ‘best and final offers’ – it leaves the door open for Gazumping.
Although we dislike best and final offers, luckily it seldom happens in the top end of the country house and estate market. But when it does, it can be a nightmare.
Imagine: a buyer finds their perfect house, the house of their dreams, and they have one opportunity to buy it. They’re asked to write a number on a piece of paper and deliver it to the selling agent by 12 o’clock on a certain day, normally a Friday. They either win it or lose it. If they win it, they may have won by tens of thousands of pounds more than the under bidder. Or alternatively they may have missed it for as little as £5,000.
We were in a situation like this on a fine house in Wiltshire in 2006; our clients had missed out by a small margin. The best and final offer was on a Friday afternoon and by Monday my client had received so much grief from his disappointed wife that he decided to make another bid – we threw in what we call a ‘financial hand grenade’ and said we would exchange that day. The poor original buyer was still complaining and threatening to sue the selling agent when we exchanged contracts!
The reality is however, that if a property is special, i.e.: in a great position and location then there is probably going to be more than one party who want to buy it. You can’t divide it in half, so there has to be a bidding process, because there has to be a winner. Yet the agents won’t take these properties to auction – in fact going back to Jonathan Harington’s previous incarnation as a selling agent 30 years ago, if he had a situation on a private treaty sale, where he had a lot of interest, he would often switch it into a private auction. But that doesn’t happen anymore.
We will do everything in our power to stop the agent asking for best and final offers and if we fail, then try and disrupt it as much as possible with such things as an escalating bid – if it has to happen we will hand deliver the offer in writing a minute before the closing time so there can be no ‘hanky panky’! However, without the auction the only other method is a negotiation/bidding war/telephone auction, call it what you will.
Buyers need to trust the selling agent. Do you?
We’re happy with a ‘bidding war’ as we know the agents we’re dealing with; we’ve often dealt with them for years and trust them. People say, “what is to stop them ‘running up’ the price with a non-existent bidder?” But we know from experience that it is not in the interest of the selling agent, or the vendor for that matter, because if they try and get too clever they risk losing everything, and that’s not in anybody’s interests.
When to use a lock-out agreement
We include a lock-out agreement with every offer we make on behalf of a client. This is because at the end of the process it is still not finally exchanged – as we always say, ‘nothing is certain until the ink is dry’. A lock-out agreement is not 100% but it does help stop gazumping and we encourage all our clients to use them.
Our relationship with the selling agent is vital – an average buyer cannot replicate it.
Handling these negotiations is a major part of our role and it’s based on many years of experience and a huge variety of different circumstances. If you find the property of your dreams, you want the very best negotiator on your side. That skill is not just playing with numbers. It’s understanding the circumstances – particularly the personal circumstances of the vendor and all the parties involved – and knowing the selling agent well. That relationship with the selling agent is absolutely vital. It can’t be replicated by the average buyer. It’s taken our team 30 odd years to create it, and it pays dividends. It’s essential.