By Greg Hankinson September 30, 2022

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Should I make a pre-auction offer?

Property Investment
Should I make a pre-auction offer?

Buyers are in an excellent position when it comes to negotiating a private treaty sale – but what about properties for sale by auction?

Should you wait patiently until the big day, fingers crossed and ready to bid?

Or should you take the plunge and make a pre-auction offer, in the hope that you’ll save yourself the stress of auction day and maybe snap up a bargain in the process?

The answer is – it depends.

It depends on the location, the local market conditions, how many interested buyers are actively buying in the area, and your budget.

The first step here is to do your research

Find out what percentage of properties in the area are sold via each method, and if this has changed over the past year or two as the market has slowed.

If more homeowners are opting for private treaty sales rather than auctions, that could be a good sign.

Next, check out the auction clearance rates.

How many properties are actually selling under the hammer, and how many are being passed in?

This is powerful information to arm yourself with ahead of negotiations, as a failed auction is a seller’s worst nightmare.

If the clearance rate is dropping as is occurring in many parts of Australia, the odds of your pre-auction offer being accepted just shot up.

I'm seeing more and more vendors agreeing to consider pre-auction offers as our property markets slow down and vendors are more nervous about taking their property to auction, preferring the certainty of a sale beforehand.

So you can make an offer to the agent prior to the auction, and the negotiation process is the same as buying by private sale.

But be careful…you risk paying more than you need to.

Here are a number of reasons why vendors are prepared to sell before the auction.

Nervous vendors: Particularly older people don’t like the stress of auctions
Sensitive sellers: Selling can be stressful, especially if the vendor is going through emotional challenges like death, divorce, or illness.
Remember you’re not taking advantage of the people you’re taking advantage of the situation and you’ll be assisting the vendor by relieving the stress.

Time-sensitive vendors: They have already bought a house and the certainty of selling their old property outweighs the potential benefit of a higher price at auction.
There isn’t much interest in the property
The agent is in a hurry to sell: This can be an advantage for you
You have a premium offer on the table

If you’re thinking about snagging a property before the auction because you’re nervous or suffering from FOMO (fear of missing out), remember you can also authorise someone else to bid on your behalf.

Choose someone you trust who has some auction experience or hire a buyer’s agent.

But you need to organise this before the auction — state laws vary so ask the agent or ring your state’s Real Estate Institute to find out what paperwork is required.

Of course, that’s what our team of buyers’ agents at Metropole specialise in — we love bidding at auction.

There’s no denying auctions are enormously stressful, and many vendors will accept pre-auction offers simply to avoid this – especially in the current market, where they can’t be assured of a good result.

If you’ve covered all these questions and are leaning towards approaching the seller, you’ll need to decide how much to offer.

This is the tricky part

Offer too low and you could put the seller offside, destroying any possibility of further negotiations; offer too high and you could inflate the seller’s expectations, giving them a renewed sense of confidence that the property will sell for a great price at auction.

Check out other recent comparable sales, the advertised price guide or Statement of Information, or arrange a valuation and go from there.

Of course, if you've got a buyer's agent working for you, levelling the playing field, they'll have done all the research for you.

Another oft-forgotten benefit of securing a property prior to auction is that you’ll be able to negotiate a more flexible sale contract, which could be good news for both you and the seller.

Plus, you’ll have the protection of a cooling-off period (unless you purchase just days before the auction) and won’t be bound to the sale if you can’t get the finance approved – luxuries that aren’t afforded to those who purchase at auction.

The downside of making an offer pre-auction?

It is possible to lose out when buying prior to the auction.

If the market is flat, and the property is passed in at auction, you could find yourself in an excellent position to negotiate a discounted sales price with a disheartened seller and might score the property for thousands less than you had been prepared to offer pre-auction.

This is one of those “roll of the dice” type factors – you have no way of knowing if the property will attract a swathe of bidders, although it’s worth noting that a lengthy period on market, a previous failed auction or a discounted price guide are all good indicators that you won’t have a lot of competition for the home.

Whether you decide to make a pre-auction offer or bid on the day, the most important things to remember are to buy a property that is within your budget, meets your needs and represents good value in the current market.

Get these elements right and your purchase will be a successful one, either way.

About Greg Hankinson Greg and his team have successfully built and renovated in excess of 500 homes throughout Melbourne and are showing no signs of slowing down anytime soon. Being a Gold member of the Housing Industry Association and National Kitchen and Bathrooms Association, Greg’s focus is on Continued Professional Development, not only for himself, but his team of industry experts.