With auction clearance rates soaring above 80% in many markets in recent weeks, the competition amongst buyers for properties is often fierce.
One tactic some buyers use is to make a pre-auction offer before the property goes under the hammer. The idea is that if you make your offer enticing enough, the vendor may ditch the auction altogether and sell to you.
The benefits of making a pre-auction offer include:
Avoiding the stress of bidding at auction
Potentially knocking out the competition
Sticking to your budget
Flexibility to negotiate the terms of the contract (unlike at auction, where the contract is unconditional and there’s no cooling-off period or other special conditions like ‘subject to building and pest’ or ‘subject to finance’).
So, how does making a pre-auction offer work?
The first step is to check with the vendor’s agent whether they are open to accepting pre-auction offers. If the answer is ‘yes’, you can put in a written offer prior to the auction. The negotiation process will be the same as buying by private sale.
If your intentions change, you can usually withdraw your pre-auction offer, so long as no contracts have been signed.
It’s a good idea to seek legal advice and check the rules that may affect your pre-auction offer. For example, in Victoria, if your offer is accepted less than three clear business days before the auction date, you do not get a cooling-off period (time to change your mind).
How to make an effective pre-auction offer
Do your research
Research is key to paying the right price for a property. The listing agent may have provided an estimate of the sale price likely achievable at auction, but you’ll want to do some more digging to understand the property’s market value before you make a pre-auction offer.
Check out recent comparable sales of similar properties in the area to get an idea of how much the property is worth. We can line you up with free property reports to make this task easier.
It may also be worthwhile attending a few inspections and auctions to get a feel for how many other buyers are in the market in the area and what properties are selling for.
The goal is to make a competitive offer that’s too good for the vendor to refuse, without overpaying.
Discover the vendor’s motivation
Ask the real estate agent why the vendor is selling and use the information to your advantage. For example, if they have already put down their deposit on their next property, the vendor may need to settle fast.
This intel could prove useful during negotiations.
If your offer is accepted, you’ll want to have your finance in order.
Make sure your deposit is ready and your home loan is pre-approved. That way, you’ll have a clear understanding of your upper spending limit. Having pre-approval in place also gives you an edge over the competition because the vendor knows the deal is likely to go smoothly.
You may need to be ready to exchange contracts quickly, so be sure to have your conveyancer or solicitor on standby.
Don’t show your hand
Be mindful about giving away too much information to the vendor’s agent. After all, they’re working for the seller, not you.
Never reveal your budget, and always imply you’re interested in several other properties. If they think you’re too keen on the property they’re selling, they may be less flexible during negotiations.
Time your offer well
Timing is crucial when you make an offer. Some experts suggest that you go in hard and early, as vendors may be more inclined to accept your offer because of the convenience factor. This may also be a good tactic in a softening market.
Others recommend waiting until right before the deadline to make the offer in case the real estate agent plans to shop your offer around to other prospective buyers.
Another tactic is to stipulate a time limit – for example, tell them the offer is only on the table for 48 hours.
Ready to jump in?
Of course, there can be potential disadvantages with making a pre-auction offer. You might end up going in with an offer that’s too high or you might end up laying all your cards on the table and having the seller go to auction anyway.
At the end of the day, making a winning pre-auction offer comes down to being well-informed and using strategic negotiation tactics.
We can help you prepare with local market insights and detailed property reports. Get in touch to find out more.