“The pitfalls of the bidding process” Current article in Südostschweiz

Time and again, sellers of privately owned properties or properties held in communities of heirs opt for a simple bidding process as part of the sales process. This approach has some advantages as well as disadvantages and usually does not lead to optimal pricing. A structured and professional sales process, on the other hand, helps both the seller and the buyer.

Bidding processes are short-lived and the time available to find the ideal buyer and therefore the ideal price is very limited. Interested parties have little time to view the property, make well-founded enquiries about the property, make an emotional commitment to the property and offer a price. The bidding process tends to be unpopular with potential buyers and puts some interested parties off from the outset. Such procedures are often organized by consultants without any special Real Estate or market knowledge and to the exclusion of meaningful documentation.
The sellers in this process also pay too little attention to buyers and their needs. The highest bidder wins the bid. The focus is therefore on the purely technical processing of a purchase agreement. However, the widespread assumption that this achieves the optimum is usually wrong.

Successful sales process
A detailed real estate sales strategy must be used to identify the best buyer. This is based on the sales price to be determined in combination with extensive market knowledge. Today, the estimated value cannot always be assessed using the usual hedonic tools. You should be able to fall back on effective transaction data. Because public availability on real estate transactions is low, especially in the canton of Graubünden, only active market participants with numerous sales and frequent appraisal work have access to this market data. In the marketing phase, the implementation of the targeted sales concept and the sales strategy as well as the agent’s buyer network and the clarifications to be made with authorities or architects are very decisive. In contrast to the bidding process, the choice of potential buyers is unlimited. The interplay of correct clarifications, the right pricing, structured marketing and timing leads to success and the best sales price.

When a bidding process makes sense
Bidding processes can nevertheless be a good alternative in exceptional situations. There are three main reasons that speak in favor of such an auction. Firstly, the seller is dependent on quick returns from the sale and is unwilling or unable to take the time for comprehensive advice and support from specialists. Secondly, the type of property plays an important role. When selling building land or investment properties, i.e. apartment buildings, the main buyers are professional real estate investors or project developers. This group has very good market knowledge and the achievable sales price will therefore almost automatically be at a realistic level – especially in the current negative interest rate environment. Thirdly, the presumed sales value cannot be determined in advance. It is recommended to set an attractive offer price so that as many offers as possible are received. Furthermore, the rules of the game and thus the number of bidding rounds should be announced to all bidders in advance and adhered to.

Real estate expertise pays off
The sale of a property is not only complex, but the value of the property usually accounts for the largest part of a seller’s assets. Good planning, market knowledge and the network of the estate agent entrusted with the sale are important factors that decisively optimize the achievable sales price. And working with a real estate specialist builds trust – for both the seller and the buyer.

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Sascha Ginesta, certified business economist HF and real estate appraiser with a federal certificate, is Head of Marketing Graubünden and partner at Ginesta Immobilien.