by Carly Susic, Melbourne Property Advocate
If you’re selling your home and the campaign is a bit slow, with a lack of buyer interest, you might be wondering about selling before auction. It’s a big financial decision, and you naturally want to get the best price possible for your home. Hopefully this guide will help you consider all the right factors before making a decision.
The ideal selling scenario for any homeowner
We all want the big street auction, with crowds gathered in large groups and free-spirited bidding from three, five or more competitive bidders. The price soars above the reserve and you’re cracking open the champagne as the auctioneer shouts ‘SOLD!’.
As lovely as that scenario is, it’s not always the outcome, especially in the current market. So what do you do if your sales campaign is stalling and there’s not much interest at the open homes?
Selling before auction is an option available to you. But you want to be sure you get the best possible price for your home. In situations like these, it always depends on your circumstances. But we can give you some general guidance to follow.
Reason for selling before auction #1: low buyer interest
In a typical four-week campaign, you will have a good indication after week two about the level of interest in your home. Agents are very good at identifying the telltale signs of buyer interest such as:
- Coming back for a second inspection
- bringing family back to inspect with them
- requesting the paperwork and section 32
- arranging a building inspection
- speaking to the agent about price expectations and settlement terms
- for some buyers, telling the agent they’re keen
Agents are very aware if buyers are not showing those signs of interest, and will advise you accordingly. They may have identified that there is only one engaged buyer; this may be time to consider selling before auction. Otherwise you may stage the auction for only one buyer, risking the property being passed into that buyer. This puts the negotiating power firmly in the hands of the buyer. If the buyer is actively looking elsewhere it may be best to sell the house to them before they walk away, leaving you with no other buyers. It is far easier to negotiate behind closed doors with a single buyer than in a public street under auction conditions.
Reason for selling before auction #2: one interested buyer is at a higher price range than the other buyers
Perhaps the agent is reporting that there is one buyer, who is open to a price that is well above any other interested buyers. You may have multiple buyers, but only one open to paying a premium price for your property. In this case it may be best to lock in that buyer by selling before auction. The success of an auction comes from competing bidders. So if there are multiple buyers at one level and one much higher, the competition may not get as high as they are prepared to go. So securing the higher price before will mean the property is not knocked down to them for a lower figure.
Reason for selling before auction #3: competing properties coming to market
If the market is feeling like buyers are flipping around and there is more stock coming, it might be worth selling before auction. If buyers can afford to wait to see what else arrives on the market, they will. Or perhaps they’re just waiting for the property that really catches their eye.
Agents are very aware of what may be coming to market in the weeks ahead. They not only have their own listings, but the properties they appraised but missed out on. Your property may be up against new listings that may hurt your sales campaign. Meaning you may be better off selling, before the competition lures buyers away.
Reason for selling before auction #4: it’s coming down to the wire and your agent is unsure of how strong the interest is
If you’re in the final week of your campaign and interest is muted, you may be concerned about the auction. By this stage your agent will ideally have a very good idea of genuine buyer interest and their price range. If you are considering selling before auction you can avoid the stress by accepting a decent offer beforehand. Last-minute buyers with thousands over the reserve are unlikely to appear out of nowhere so the sensible approach is to move forward and negotiate with buyers.
How selling before auction works
You and your agent will want to get an idea of buyer interest and demand before jumping the gun. So during the early stages, the agents will likely not enter into discussions with buyers about offers beforehand. Agents want to sense the environment and see where attention lies before making any recommendations to you.
If buyer interest is low, agents will speak to you about selling before auction. Together you can form a plan to attract potential offers beforehand.
Firstly, the agents will let buyers know that you, the vendor, are open to acceptable offers. Or, at this stage, if buyers ask the question, agents will begin early discussions.
The offer must be acceptable to you
The key to selling before auction is considering offers that are genuinely acceptable to you. If your reserve is $1,000,000 and a buyer offers $800,000, that is not a realistic offer and should not be considered.
Agents can help manage price expectations to buyers by saying things like:
- ‘you have to make a strong offer to take it off the market’
- ‘you have to stick your neck out if you want to buy it before’
- ‘the vendor is open to offers that will need to be at the top of the quoted range or better if they are to sell prior’
If the buyer is talking about a price range that you’re open to, then start negotiating.
The last stages of negotiation
Once the buyer makes an offer that is within an acceptable price range, then negotiation can start. The agent will take care of the process on your behalf. When the buyer makes an acceptable offer it will be put in writing in the form of a contract of sale. Typically, the agent will tell the buyer that their offer is at an acceptable level and the property is then placed on the market to sell. Then the agent will contact any other interested buyers and advise them that an acceptable offer has been received and the property will be sold if there is no better offer. These buyers will be given a short window to place an offer or advise the agent that they would like to contest the offer. This window is usually within 24 hours, and no more than 48 hours.
For example the agent may say, ‘The home will be sold by 5pm today, give me your best offer if you are interested.’ There might be just the one genuine offer or there may be multiple offers for you to consider.
There may be a boardroom auction
If you have multiple buyers still interested, the agent may stage a boardroom auction. Agents will gather together interested parties to mimic the auction environment. It typically takes place in the offices of the real estate agent, or on occasion, in the property itself. Interested parties attend the meeting and place bids on the property until it is sold to the highest bidder.
Read more about boardroom auctions here.
How to decide whether you should accept the offer?
It depends on whether that offer is acceptable to you. If you are happy with the offer, and your agent is certain that it is the best option for you, take it. It can be better than going to auction if it is a strong offer above the market.
However if you are not comfortable, you should not be pushed into accepting, just to please your agent. Often, you don’t know until the home is on the market where the price indications are sitting. If you can afford to hold out for a better offer, it may be wiser to wait. However if you have had the property on the market for a long time and have only had lower offers previously and a failed auction, it may be best to accept. It all depends on your circumstances and goals.
It’s important to be realistic. You, the vendor, do not set the price. It’s the buyers who indicate the level of interest. So set your expectations on the current market performance, comparing similar sales in your area. The price you need to move on, buy another property, retire or settle your debts is irrelevant to buyers.
Read more about real estate pricing strategy here.
To recap: selling before auction
- Only sell before the auction if buyer interest is low.
- Consider selling before auction if you only have one interested buyer at the right price or if more competitive homes are coming on the market
- Only consider offers before the auction that are fair and reasonable to you
- Don’t let the agent push you into accepting an offer you’re not comfortable with
- Your goals and financial position will determine whether you should accept the offer on the table
- Be realistic about your price expectations
- Be prepared for a boardroom auction
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