Making an offer prior to auction

Making an offer prior to auction

by Michelle Lee

You’re in love. You’ve found the property of your dreams, and it just feels ‘right’. You imagine yourself opening the front door, relaxing in the lounge and entertaining on the deck. You really want this one. Do you wait for auction day? Or is making an offer prior to auction the best move? 

Making an offer prior to auction is a common tactic 

The theory goes that if you place an offer prior to the auction, the vendor will be tempted to accept. They’ll be nervous about the house selling at auction. Plus, they’ll be saving themselves the cost and stress of going through the auction process. 

But does it really work like that? Unfortunately, not often. 

Many people believe in this tactic. Perhaps they’ve seen it on property reality TV shows. Or a friend who owns multiple investment properties swears by it. Sadly, it’s not often the case.  

When you’re making an offer prior to auction, you are bidding in the dark 

You have no idea what level the market is at. The agent knows the plans of interested parties. But you have no clue. You are showing your hand early. You are telling the agent how much you are prepared to pay. 

What buyers don’t realise about auction sale conditions 

Agents use the property sale legislation to their advantage. When a property is auctioned in Victoria, the auction conditions of sale become effective three days prior to the auction. This means that if you make an offer during this time period, you are not subject to the normal cooling-off period. Plus, your offer is binding. It’s considered unconditional and you can’t back out later. That’s why agents often try to stall you. They’re trying to get you the auction conditions timeframe.  

The most common mistake nine out of ten buyers make

You make an offer prior to auction, but it’s too low. Then the offer is rejected. Now, you’re in a compromised position heading to auction. The agent knows how much you’ve got to spend. They’ll be working hard to push you over your limit, and use other interested parties to compete with you to drive up the price. Remember, agents  quote low to get as many interested buyers as possible. So you may be misguided on the true price. It’s easy to make the mistake of an offer that’s too low. 

Making an offer prior to auction can trigger more competition

Agents want to drive the price up. So if you make an acceptable offer prior to auction, the agent doesn’t simply take your offer to the vendor and deal exclusively with you. Instead, the agent contacts all interested parties to let them know there’s money on the table. Effectively, it’s starting a bidding war prior to the auction. But unlike the auction, where you can see who’s bidding and when they drop out, you are negotiating in the dark, with no idea of other buyers’ intent. So, instead of knocking out the competition, you are stirring up action behind closed doors, and leaving yourself vulnerable to overpaying or missing out.  

The important factor that you won’t know about till auction day

The reserve. There’s no way to find out the reserve price prior to the auction.

 We recommend waiting……….most of the time 

That way, you can watch buyers as they bid. Just by reading body language, you can get a good idea when they are reaching their limit. Keep your cards close to your chest. Plus, you can wait till the reserve is declared. That’s when the true bidding starts. 

If you do want to offer prior to auction, here’s the best approach. 

  • Do your homework to find out what the property is really worth—comparing recent sales of similar properties in the area 
  • Remember that the agent has quoted low to secure your interest, to take a property off the open market you will need to offer an amount that is close to to the reserve if not in excess, which will be at the top end of the quoted range or usually significantly higher. 
  • Your offer will need to be strong for maximum chances of acceptance
  • Offers  well ahead of the auction will catch other buyers unprepared, who may not be ready to beat your offer 
  • Tell the agent it’s a best and final offer, to avoid the back-and-forth negotiation tactics that agents commonly try

Sometimes, it does work

Of course, there are occasions when it’s possible to offer prior to auction and secure the property. We evaluate each property against the goals and budget of our buyers. If the circumstances are right, we will suggest this approach from time to time. If you don’t have a buyers advocate helping you, it’s probably better to wait till auction day. 

What about vendors? Should I accept prior to auction? 

If you are selling your home and you get an offer prior to auction, it depends. If you have interested buyers, but one party has a larger budget, it may be wise to accept. Let’s say you have a price you’re quoting at $1.1 million. You have three interested parties. Two are at $1.1 million and the third buyer has a larger budget of $1.2. If you get the knockout offer of $1.2, it’s worth accepting. Because at auction, the other buyers may l drop out at $1.1 and the winning buyer could secure the property for $1.15. 

On the other hand, if you have interest all around the same price, you’ll be better off waiting for auction, to drum up competition and let them fight it out. 

When you simply must have this property

Consider a buyers advocate. We can help you determine an accurate estimate of the property’s worth and guide the process of buying prior to auction on your behalf. Contact us to arrange a no-obligation discovery call where we can advise you on the best approach. 

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