What to consider when making a Pre-Auction Offer

We know the feeling. You have found the one place that you really, really want, but now you have to wait for the auction day and hope that you have the winning bid. For many of you, you may have already attended and lost out at previous auctions. This is at least disheartening - and costly (before auction you will have already paid for Pre-purchase  Pest and Building Inspections).   With this in mind, and with auction clearance rates at over 80 per cent, properties are selling considerably more than the guide price. In turn, more and more homebuyers are desperately trying anything in order to get their foot on the proverbial ladder. This can mean overbidding at auction as your FOMO strikes (fear of missing out). An alternative to this emotional rollercoaster could be to attempt to buy the property before the auction ever goes ahead. How does one go about it? 

Make them an offer that they can't refuse 

In order to purchase the property before an auction takes place, you need to make a substantial and enticing offer. The agent must take all offers to the vendor, but still, you want it to have a good chance of success. Vendors are well aware of sale prices exceeding guide prices, so if you come in early with an offer, make it a strong one. By doing so, you are basically removing yourself from the final auction process where there may be more affluent or eager buyers than you. You are also basically attempting to circumnavigate most of the competition. It could be better to overpay some here than to heavily overpay at auction (which we would not recommend!). 

Finding the balance i.e, Don't offer too much…

At the same time, don't get carried away! If you put in an offer that is too high you risk overvaluing the house and ending up with a bank valuation shortfall. Not only that, but if you enter the fray too early with such a good offer, then you may end up getting the vendor/estate agent overly excited as to the potential of the house if it were to go to auction. The answer, as we say with all things property, is to approach it without emotion.

If the house has just appeared on the market, have a look for when the auction date is due. With that in mind, aim to approach them around halfway through their campaign. At this point, you may be able to determine what the level of interest is. If the agent or vendor feels they haven't had the interest they expected, or border closures threaten to derail attendance, they may just decide that your solid offer is worth taking than risking going to auction.

It's not always about money  

It could be easy to get disheartened and just not bother to make any offer. That would be a mistake. Never assume what the circumstances of the sale are. For example, for a deceased estate, the inheritors may simply want to sell the property as fast as they can. An early, motivated buyer who comes in early and offers say 5-10% over the asking price may just be surprised with a positive response. If you have ever been waiting for an auction only to see a notice saying ‘sold prior to auction’ this is very likely what might have happened.

Final thoughts 

Buying a house pre-auction can seem like a really good idea. However, it's worth remembering that for popular properties, in this red hot maker,  there is in effect an auction process going on behind the scenes anyway. When you place your offer, there may also be other offers that it is going up against. Also, vendors will also likely favour buyers that come in motivated and with a ‘clean offer' (this is an offer that is not subject to finance). Sadly, a vendor is unlikely to accept a subject to finance offer when there is such momentum in the market. Having said that, there is nothing to stop you from giving it a go. 

Written by Ben Saravia,  

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