Expressions of interest: How the process really works and the implications for buyers and sellers
In our previous article on expressions of interest (EOIs), we described this form of property sale as being a bit like a game of poker with high stakes and few or no rules. EOIs can also unfold very differently depending on the agency involved and on the dynamics of the situation making them a challenge for the unprepared buyer.
Here are a couple of examples that show just how differently EOIs can pan out:
22 Rowland Street, Kew
22 Rowland Street, Kew (pictured above) was a quite extraordinary property and we were curious as to what its eventual value would be.
So what happened in the end?
Well, by March 1, the agents Kay and Burton had received expressions from four interested parties. Three of these were invited to a Boardroom discussion. This was a little unusual in that the seller’s reserve had not already been met.
The three parties competed at this Boardroom discussion at the mid $4 millions level, until the highest bidder was established. That party was then negotiated with exclusively until an agreement was reached. The final purchase price is confidential but it was in the ballpark of $5 million.
38 Cochrane Street, Brighton
A quite different scenario unfolded with another EOI campaign that we were involved in, for 38 Cochrane Street (pictured above), which came to a conclusion the following day.
This property shared some similarities with Rowland Street – it too was an excellent and unusual home and the vendors had decided to sell it through an EOI campaign with Kay and Burton as the agency.
It too had four bidders. But beyond that, the way things unfolded at Cochrane Street was very, very different.
For a start Cochrane Street had a quote, of $3.25 million plus, whereas 22 Rowland did not.
More importantly this EOI campaign did not go the distance. The closing date was March 11, but an offer of $3.5m was put forward two weekends before the closing date.
Another difference is that in this case the buyer offer was acceptable to the vendor. The home was therefore declared by the agents as being “on the market”.
It also triggered a faster resolution process than 22 Rowland St Kew. While the Boardroom auction had initially been set down for Monday, after some behind-the-scenes discussions mid way through Sunday afternoon, that was changed to Sunday evening.
At 8.00 pm on Sunday evening, in the home, four interested parties – including us – turned up and all bid until 38 Cochrane was sold “under the hammer” for a confidential amount in the ball park of $4 million.
Implications for buyers
As you can see then, just in these two examples we have two very different methods within the EOI via the boardroom auction resolution concept. These have important ramifications for buyers.
- One was “on the market” before the bidding started, and one was not. When a home is not “on the market” there can be traps for new players.
- One was concluded well before the EOI closing date and one was concluded two days before. The difference here was the element of surprise from the buyer versus the planned strategies from the seller.
- One was sold publicly in front of all bidders and one was not. Both would have put incredible pressures on people not used to this form of dealing. Try sitting around a table or in the same room with three others who are politely trying to beat you to a pulp and you will start to get the feeling of what a boardroom auction is designed to do.
And there are other ways of conducting EOIs
- EOIs can work via inviting best offers, which means you all put in your offers in writing and the highest wins. It doesn’t always quite pan out quite like that, however, which is where it gets tricky.
- You can also have EOI via a private negotiation
- And of course plenty of EOIs don’t actually sell.
We have been involved since last year with another EOI Kay and Burton campaign on a totally different property at around the same $5 million price point – and no resolution has taken place yet. As late as last week we were in discussions across the table with both the seller and the “attempting buyers”. This is not a criticism of the process, this is a fact of life. This last meeting took place on a Saturday evening with directors of James Buyer Advocates and Kay and Burton present – so at least both agents and advocates are still trying.
But wait there is more
These are examples of EOIs conducted by Kay and Burton. That’s just one agency. Other agencies we have been involved, such as Fletcher’s, Jellis Craig, RT Edgar, and Hocking Stuart, operate EOIs very differently again. They all have different methods for EOI and the large majority of them are not in writing.
So in summary, expressions of interest are subject to:
- Big variances within the agency
- Big variations across different agencies
- Changes in the “rules” as you go through the process
If you think this process is designed to be transparent and fair to the buyer then you completely misunderstand the concepts behind the process. Not that this is a criticism; after all, the selling agents are not working for you the buyer, they are working for the seller – and whatever works for them is doing the job.
So why would a seller or a buyer get involved in an EOI anyway?
Seller
Often in a sale – auction or otherwise – there is one standout buyer. Conducting an auction campaign with a skilled lone buyer (or buyers’ agent) doesn’t always get the best result for the seller. An auction works best when there are multiple buyers at a certain level. But because an EOI is not transparent – you can’t see any other buyers in action – and there is no real time limit, that can work well for the seller as long as a skilled selling agent is involved.
Buyer
If the home you want is for sale by EOI you have no choice but to be involved. But hopefully you can read between the lines to see some of the strategies of the buyers who eventually won 22 Rowland and 38 Cochrane. Those strategies were very clear and distinct and planned and well-executed, resulting in the desired result.