In the competitive world of real estate, sometimes you need to think outside the box and take proactive steps to secure your dream home. Making a pre-auction offer is one such strategic approach, and in this article, we will guide you through the process of making an offer before an auction.
This knowledge could potentially save you from the nerve-racking experience of bidding at auction and help you secure a property at a favourable price.
Understanding the dynamics of making a pre-auction offer, what to consider, and the art of negotiation can be the key to buying a home. In this article, we’ll explore why it’s worth considering this strategy, how to proceed, and some pitfalls to avoid.
Understanding Pre-Auction Offers
A pre-auction offer is a strategic approach taken by a potential buyer to buy a property before it goes to auction. The idea is to persuade the vendor to accept your offer and avoid the unpredictable outcome of auction day. However, this approach requires careful planning and negotiation.
Making an early offer can work to your advantage if the seller is keen to secure a sale quickly. However, your offer must be enticing enough to convince the vendor to forego the auction, which they may perceive as an opportunity to get a higher selling price.
When to Make a Pre-Auction Offer?
The timing of making a pre-auction offer is critical. Too early, and the vendor may not have had enough market exposure to consider an early sale. Too late, and they may prefer to proceed to the scheduled auction.
Typically, the best time to put in your offer is a week or two before the auction date. This allows enough time for your offer to be considered and potentially accepted. However, every situation is different, and the ideal timing may vary based on the vendor’s circumstances and the property’s market interest.
How to Make an Enticing Pre-Auction Offer?
Firstly, research the market. Get an idea of what the property is really worth based on recent comparable sales in the area. This will inform your offer and ensure it is competitive yet within your budget.
Secondly, consider making an offer that is unconditional. This means the offer is not subject to any conditions such as finance approval or a building and pest inspection. An unconditional offer is more appealing to the vendor as it provides certainty of sale.
Lastly, be prepared to pay a 10 per cent deposit immediately if your offer is accepted. This demonstrates to the vendor that you are serious and ready to proceed with the sale.
What Happens After Making a Pre-Auction Offer?
Once you’ve made your offer, there are a few potential outcomes. If the vendor accepts your offer, the property is removed from auction, and you proceed to the contract of sale.
If your offer is rejected, you can choose to increase your bid or wait for the auction. Keep in mind that once you’ve made an offer, the real estate agent is legally obliged to pass it onto the vendor.
This can sometimes lead to a ‘Dutch auction’, where the agent might accept multiple offers and uses them to bid the buyers against each other.
Are There Risks Involved in Making a Pre-Auction Offer?
Like every strategy, making a pre-auction offer comes with its risks. It is crucial to have your finances in order, including home loan pre-approval, before you make an offer. Making an offer without a secure financial plan could lead to a loss of deposit if you cannot complete the purchase.
Another potential risk is paying more than what the market is willing to accept on auction day. This can occur if you let emotions dictate your offer rather than basing it on market research and expert advice.
To Bid or Not to Bid – That is the Question!
Making a pre-auction offer can be a great strategy to secure a property, but it’s not always the best approach. If there’s high interest in the property and it’s likely to be a competitive auction, making a pre-auction offer might simply reveal your hand without securing the property.
Remember, the goal is not just to buy a property but to buy it at the right price. Whether you choose to make a pre-auction offer or bid at the auction depends on the specific circumstances of each property and your own preparedness for the buying process, especially when you’re buying your first home in Australia.
FAQ about Making an Offer Before Auction
What is pre auction marketing?
Pre-auction marketing is a marketing strategy used to generate interest in a property before it goes to auction. This is typically done by advertising the property in newspapers, online, or through real estate agents.
Pre-auction marketing can help to increase the number of bidders at the auction, which can lead to a higher sale price.
What is the difference between auction and offer?
An auction is a public sale where the highest bidder wins. An offer is a private sale where the seller and buyer negotiate the price.
In Australia, auctions are more common for the sale of real estate, while offers are more common for the sale of cars or other goods.
Can an auctioneer refuse to accept even the highest bid?
Yes, an auctioneer can refuse to accept even the highest bid. This is called a “with reserve” auction. In a with reserve auction, the seller has set a minimum price that they are willing to accept.
If the highest bid does not meet the reserve price, the auctioneer can refuse to sell the property.
Can you sell to highest bidder before auction ends?
Yes, you can sell to the highest bidder before the auction ends. This is called a “pre-auction sale”. A pre-auction sale can happen if the seller and the highest bidder agree on a price before the auction.
Should bid be higher than offer?
In general, a bid should be higher than an offer. This is because an offer is a private sale, while a bid is a public sale. In a public sale, there is more competition, which can drive up the price.
