Winning Strategies For Pre-Auction Offers

March 4, 2020
Winning Strategies For Pre-Auction Offers

Regardless of where you live around the world, real estate auctions are stressful. Auction day brings the anxiety of having to do battle by bidding against other people, in a public arena. Somehow, you are supposed to manage your emotions so you can stick to a budget.

Whether in a hot market or cold market, vendors should look to the auction process to sell as it does create more effective urgency. However, for the purchaser, a smarter way to avoid the stress of auction day is to make an offer prior.

It works both ways as for the vendor accepting a pre-auction offer can be beneficial because you have the leverage to demand a strong offer.

Making a pre-auction offer is standard in most real estate markets across the globe, for example, Sydney, Australia recorded close to 30% of all properties were sold before the auction day in the last quarter of 2019.

Making a pre-auction offer is not hard to do: You simply verbally communicate your offer to the listing agent in person or via phone, or put your offer in writing and submit it, most commonly this is done via email.

The more appealing your pre-auction offer, the more likely the vendor will accept it.

Here are several keys steps to follow when making an offer before auction day.

Step 1: Educate Yourself

The listing agent selling the home should provide an estimate of the sale price likely to be achieved at auction (usually in a 10% range such as 5M– 5.5M). Remember these are estimates and could change with buyer feedback after open for inspections.

Simon Doak, Principal at 1st City Minogue and Doak in Woollahra, said, ‘It’s vital buyers do their research so they can understand current property values before making an offer prior. The more information you have as a buyer, the better equipped you are to secure the home prior to the auction.’

Use search engines, real estate portals (Soho App Properties) and attend other auctions in the area to find out the sale price of nearby properties that have recently sold (within the last four months). Ask the agent how many contracts have been issued. Ask for the pest and building reports and ask why the property is being sold.

If the vendor selling the house has already purchased elsewhere, most likely they may be more willing to consider a pre-auction offer. Importantly, ask if any other offers have been made and, if so, what sort of money is on the table.

Step 2: Be Smart in Negotiating

Remember the agent is working for the vendor, so don’t tell the agent that you will do whatever you can to secure it. Don’t tell the agent your exact budget.

Be smart and start with a competitive offer based on your comparable research, but leaving room to negotiate.

Keep in mind that agents may ask about the other properties you have been viewing or inspecting. This question is an effort to garner an understanding of what sort of budget you actually have.

Step 3: Hard Work Pays Off.

Pre-auction offers are unconditional, (No Cooling Off) the same as on the auction day. So, you, the buyer, need to have all your ducks in a row before making an offer on a house prior to auction. That means having the contract viewed by your solicitor and talking to your finance broker. You want to avoid having an offer accepted only to have your finance not go ahead.

Todd Houghton from Raine & Horne North Sydney says that the more organised you are with your finances, the stronger the offer is. Make sure you communicate with the agent how soon you would be able to sign the contract and pay the deposit.

Don’t be afraid to let the selling agent know you have this conditional approval – it shows you mean business.

Step 4: What If My Offer Is Rejected?

If your pre-auction offer is rejected, that’s fine. Perhaps it’s because there is a lot of interest in the home and the fairest way to choose a buyer is via the auction. Either way, you’ll enjoy peace of mind knowing you haven’t gone over budget and you can attend the auction and use your skills to win the property on the day.

See our article on 8 Strategies for Winning at Auctions on how you can secure a win on auction day.

James Pratt
CEO of James Pratt Auctions and the 2019 REB Australian Auctioneer of the Year.
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