High auction volumes and clearance rates across Australia confirm it’s a popular way to sell and buy property, but could striking a deal before the auction date be a sure-fire way of landing the home of your dreams? Pre-auction negotiation may not be for everyone and in this article we investigate a few things you should consider before making an offer in advance.
Over 20% of NSW homes listed for auction in the first week of March 2017 were sold prior to auction. And as a sign of continuing high demand nationally, it was a similar story in many of the other states with around 12% of properties selling pre-auction in Victoria and South Australia. There is a number of reasons why homes sell pre-auction, including an offer that’s too good to refuse, or the vendor might be committed elsewhere and is looking for a quicker sale.
Lining up to bid for a house on auction day can be nerve-wracking. You could be worried you’ll end up bidding more than you can afford. Or perhaps you just don’t feel confident. That alone could be a good reason to consider making an offer before you’ve got the auction paddle in your hand.
What are the benefits of making a pre-auction offer?
“Buying prior to auction means you can be a bit more level headed”, says Neil Robson, real estate agent with Ray White, “so if you’re inclined to be emotional and competitive it might be worth making an offer in advance”.
Avoiding the fray of auction day is just one of the benefits of putting in an offer before the day. Others can include:
- Getting a head start on your competition
- Knowing exactly how much you’ll pay and sticking to that budget
- Getting into your new home sooner
- The benefit of a cooling-off period in case you change your mind, which doesn’t apply buying at auction
Of course, getting in early doesn’t necessarily mean the vendor will accept your offer, but understanding what the vendor is thinking may help give you a future advantage.
When will a vendor consider my offer?
Buyers aren’t the only ones who get cold feet. While some vendors won’t want to take the risk of losing the sale with a realistic and firm offer on the table, others may hold out, hoping for a higher price at auction.
Doing your homework as best you can to understand the vendor’s motivation and the current market is important. Factors that could come into play include:
- The vendor has committed to buying their next home so they’re keen to sell.
- The agent hasn’t been able to drum up enough interest through their marketing campaign.
- The market is unpredictable so a good result at auction is not guaranteed.
- Your offer (or that of a competing buyer) is just too good to refuse.
A ‘too good to refuse’ pre-auction offer doesn’t necessarily mean a higher than expected bid, but you need to be realistic if you want to be taken seriously. Look at recent sales of similar properties in the area and work with the vendor’s agent to get some idea of a price that’s likely to meet or come near to their expectations. It’s usually a good idea to leave some room for negotiation within your budget.
How can I negotiate a sale that keeps everyone happy?
Negotiating a pre-auction sale isn’t just about knowing what to offer, it’s also about when. You don’t want to waste the vendor’s time or your own, so it’s important to cover these basics before you start negotiating:
- Do your research so you can make a realistic offer
- Put your offer in writing
- Secure pre-approval for financing (a broker can help you with this)
- Build a relationship with the vendor’s agent – don’t negotiate directly with the seller
- Be happy to walk away if the deal doesn’t work out
Timing can be everything and you need to be prepared so you’re ready to go if your offer is accepted, advises Robson. “We’ve had plenty of scenarios where people have left it a day or two to come in with a cheque and suddenly they’re up against other interested parties in the negotiation.”
To help get your offer over the line, you might also consider offering the vendor a ‘sweetener’ such a shorter settlement or waiving the cooling-off period. You should always check with your solicitor about the implications of waiving the cooling-off period in your state and always ensure that the necessary property inspections have been completed.
When should I just walk away?
Even if you’ve approached the negotiation like a pro, there are times when walking away could be the right thing to do. You don’t want to feel like you’re being put under too much pressure to finalise quickly or the price is being pushed too high by the vendor or another buyer. And if you can’t meet the rules of engagement (such as deposit, terms, settlement period) as laid out by the vendors’ agent, it could be the time to back out.
Some helpful advice for negotiating a pre-auction sale is to be prepared, while also understanding that being prepared might not always be enough. Keep in mind that even if your offer is not accepted, you can still go to the auction and you could still secure the home for the pre-auction price you offered. Talk to an Aussie broker today about making an offer on your next home.
Making your next move? These links might provide some more useful information about the process: