5 top tips to negotiate your way into a pre-auction purchase

 

When a purchaser gets involved in negotiating for a property they’ve fallen in love with, emotions can rule logic. light-bulb

It’s easy to get caught in the moment and end up paying more than you perhaps should.

As either a homebuyer or a property investor, it’s critical not to get carried away by your emotions, but instead approach the negotiation process from a position of knowledgeable detachment.

What do I mean by this?

Quite simply, you need to have done your research, know the value of the property you hope to buy and remain as impartial as possible so if need be, you can walk away.

So let’s take a look at the best way to secure a property prior to auction and how you can use some tried and tested negotiation tactics to come out ahead of the game.

Forced to buy before auction

Buying before auction can sometimes be more nerve-wracking than attending the auction itself.

When you are standing amongst the crowd of bidders, you can clearly see your opposition and what price they’re prepared to pay. agent house

I find auctions a transparent selling method, which if you are experienced, can give you the upper hand.

However a recent purchase the team at Metropole made for a home buyer brought to light just how stressful putting your cards on the table before the big event can be.

Presented with an attractively renovated townhouse that was scheduled for auction, but was going to sell two weeks earlier because the vendors had received an acceptable offer, we were put under pressure from the selling agent to make a move or lose out.

Making it clear that if there was no other offer forthcoming, the property would be sold, the agent created a sense of urgency that any layman would find daunting,

At this stage our clients, a young married couple, had not managed to view the property so I bought a little time – enough to get them through for an inspection and as I guessed, they fell in love with the home because it suited their family’s requirements down to a tee..

The rules of engagement

I asked the agent to clearly spell out his agency’s specific rules of engagement when properties are sold before auction and as one would expect, the terms and conditions were predominantly in the vendor’s favour, including a 10% deposit, unconditional terms and specific settlement date to meet the vendor’s purchasing requirements.   

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Additionally, our offer had to be in writing and presented by no later than 5pm the next business day.

Whilst I wasn’t privy to the specific offer that had already been made, I was advised that it was at the top end of the quoted price range.

However, having thoroughly researched the area and the comparable property values along with recent sales, I knew the property was worth more than the top end of the quoted price range.

With this information, we established a ‘walk away’ price and decided if it was exceeded, we would get on with the property search and not dwell on what could have been.

Essentially, we were limited to making our best offer and if it happened to be more than the first buyer then, without our offer being disclosed to them, they would have a right of reply

However we would not be afforded the same luxury, so to stay ahead of the game we calculated how much the other interested party might go up to and hopefully make our offer more attractive, yet not too excessive for the property’s value.

This is what I call ‘flying blind’ and to get the best possible deal and beat out the competition, the right market knowledge and buying strategy are critical to give you an edge. business man hand exchange dollar sign and house icon

However we would not be afforded the same luxury, so to stay ahead of the game we calculated how much the other interested party might go up to and hopefully make our offer more attractive, yet not too excessive for the property’s value.

The only thing we kept up our sleeve was that no one knew what we were prepared to offer right until the 5pm deadline.

I delivered the contracts at 4:59pm and was advised we had the highest price on the table.

I had a coffee and waited about 15 minutes to hear the outcome as the offers were presented to the vendor, who was inside the agent’s ready to sign a contract.

The other prospective buyers, the one’s who had made the first were also present, exercised their right to increase their offer but luckily we just pipped them at the post– it was a very close race!

As you can imagine, our clients were overjoyed.

It was an emotional roller coaster, but a great result.

What are the lessons?

The big take home message is that time is always a critical factor when it comes to successful negotiation.

In this case it was the only weapon we had to put pressure on the other buyers because, had we responded sooner than the 5pm deadline, the first buyer may have used that extra time to come up with an offer higher than ours; and it would have been our clients who walked away without the home of their dreams.

In summary, here are my top five top tips for negotiating your way into a pre-auction purchase;

1. Do your homework

It might be considered ‘flying blind’ to make a competitive offer against another potential purchaser when trying to secure a property prior to auction, but that shouldn’t mean you have no idea as to the price you’re prepared to pay.

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The best weapon when it comes to negotiation in real estate is knowledge.

Know the market, know the value of the property in question and armed with that power, if it’s the right property – and especially if you’re looking at buying your home – don’t be scared to put your best offer first.

There’s no point risking losing the home of your dreams just because you wanted to nab a bargain.

But you should also be prepared to walk away if the price is too high.

2. Be prepared to lose

While no one likes to consider themselves the ‘loser’ in any sort of negotiation campaign, it’s far better to walk away and live to fight another day than over-commit to a property you’ve become emotionally blinded by.

This comes back to tip number one – if you know the true value of a property and set a limit on what you’re prepared to pay, make sure you stick to your plan.

After all, there are plenty more “fish in the sea” and by losing gracefully, you just might find you’re a bigger winner the next time around.

3. Don’t be forced into a “Dutch auction”

A “dutch auction” is essentially where two or more potential purchasers end up making “blind bids” prior to the property going to auction. 37167921_l

Having no idea how much the other party is offering, the selling agent will tell you that they have put in a higher amount and ask if you’re prepared to increase your offer.

This can go back and forth a number of times, depending on just how far each party is prepared to go.

Dutch auctions often push the price of a property beyond reason as emotions get the better of unwitting participants.

Again, the key is to walk away when you reach the limit you set yourself.

4. Time is your greatest weapon

Use time to your advantage by making your offer at the last possible minute.

Never be too hasty or impatient as this will work against you and could be the reason you lose out to another purchaser.

During any negotiations, waiting is a great weapon in your arsenal. It will make the other party sweat a little and it gives you the upper hand.

5. Play your cards close to your chest Property-Investment-Checklist-300×199

Real estate agents are very skilled at prying information out of potential purchasers, including the price they’re prepared to pay for a property.

After all – it is their job!

Sometimes you can end up revealing things to them that you never intended to and that might be detrimental to your negotiation power.

By keeping your cards close to your chest and revealing very little about how much you might pay for a home, you maintain an advantage and ensure the agent cannot use your information to sway another potential buyer to increase their offer and outbid you.

What steps will you take next?

If you’re thinking of buying your new home or an investment property why not level the playing field and get the experienced buyers agents from Metropole on your side.  

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While we’re well know as Australia’s premier buyers agents for investors, we also help home buyers find the home of their dreams at the right price.

If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

 


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About

Bryce is a property development specialist, having successfully sourced, project managed and completed hundreds of development projects for Metropole’s clients, helping them create substantial wealth.Visit Metropole.com.au


'5 top tips to negotiate your way into a pre-auction purchase' have 5 comments

  1. Avatar for Property Update

    March 15, 2018 Joerg

    Hi Michael, Great article and strategy to buy before an auction. I’ve got a question re. the risk. You wrote under “The rules of engagement” “… unconditional terms … to meet the vendor’s purchasing requirements.”
    How do you deal with “unconditional”?
    To minimise the risk for the buyers, a Building & Pest Inspection and the Buyers Searches by a conveyance should be done in a normal sale. The cost in SE QLD are approx. $500 + $700 = $1200.
    If the buyers get the checks done before putting in an offer, then they pay $1200 without the guarantee to get the property.
    If they buy the property without these checks, they may end up with expensive surprises.
    What can you recommend buyers? Or what did you do that time in your written case? Thank you.

    Reply

    • Avatar for Property Update

      March 15, 2018 Michael Yardney

      Joerg
      When you buy at auction, rather than before auction, it is also an unconditional sale – so it’s not really any different.
      Unfortunately it’s a necessary “cost of doing business”

      Reply

  2. Avatar for Property Update

    May 22, 2016 iain

    Pre auction bidding should be illegal.
    There is no transparency and seems very open to agent manipulation.
    Is like bidding against shadows.

    Reply

    • Avatar for Property Update

      May 22, 2016 Michael Yardney

      Iain
      Isn’t making a bid before auction exactly the same as any other offer and like a private sale – there is no reason it should be considered illegal

      Reply

  3. Avatar for Property Update

    February 28, 2016 joe

    you don’t know what a dutch auction is mate

    Reply


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