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?

41235969 Close Up Of House Model With Gavel On Wooden TableShould 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 auction, 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, the odds of your pre-auction offer being accepted just shot up.

Along with general market conditions, another factor to consider is the individual circumstances of the seller.

Are they in a hurry to sell, because they’re going through a divorce or financial difficulty?

Divorce PropertyPerhaps they are elderly downsizers who don’t really feel comfortable with the tense atmosphere of an auction, and are only going through with it because their agent has suggested it?

READ MORE: 6 times you can snag a property pre-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.

ResearchCheck 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?

Auction resultsIt is possible to lose out when buying prior to auction.

If the market is indeed flat, and the property is passed in, you could find yourself in an excellent position to negotiate a discounted sales price with the 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, that meets your needs and that represents good value in the current market.

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

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Bryce Yardney

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


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