Should I make a pre-auction offer? - October Market Update

By Rich Harvey, CEO & Founder, propertybuyer

Written by: Rich Harvey, CEO & Founder

propertybuyer.com.au

This is perhaps one of the most common questions I get asked as a buying professional, and it’s easy to see why. The idea of securing a property before it goes under the hammer is appealing. As a purchaser you get to avoid the competition and stresses of the auction and may even secure contract terms that are more attractive than those presented by an auctioneer.

So, does that mean you should play your cards early and put in a pre-auction offer on the home you’re interested in? Well, it’s not a ‘yes’ or ‘no’ answer. Things are a bit more complex than that.

Here are my key considerations for choosing when you should make that early bid, and how to go about it to maximise your success.

1. Does the home tick all YOUR boxes?

The property will need to be ideal for your purposes before you consider a pre-auction offer. It should fulfill your list of “must haves” and cover off many of you “like to haves”.

Putting in a pre-auction offer on a home that you’re realistically only mildly interested in is a huge waste of time and effort, and risks isolating the selling agent which can come back to bite you on another deal down the track.

So – make sure it’s the right one before you put it all on the line.

2. Know its market value

Before putting your offer forward on a property, you must accurately appraise what price it’s likely to achieve on the market. This is, of course, best done by comparison to other recent, local, similar property sales.

Knowing the property’s market value means you are well informed and can determine what sort of offers will be convincing enough to have the seller taking you seriously. If the assessed market value is well beyond your budget, then I’d suggest you’re unlikely to succeed with a pre-auction offer in most instances.

3. Understand the seller’s motivations

This is key to your decision on whether to make an early offer or not, but gathering intel on their motivations isn’t easy.

You need to know if they’re selling via auction because they want a quick, unconditional transaction. Perhaps they’ve bought elsewhere and need to move on? Conversely, they may be comfortably able to wait and take it to auction, and not really interested in considering a pre-auction offer. You offer will simply be used as a gauge of the market by the agent to help set the reserve price, and that is of no benefit to you as a buyer.

Getting this intel is tough because you need to ask the right questions of the selling agent and then read between the lines on their responses.

This is where buyers’ agents are a huge advantage. Our experience and long-forged relationships with selling agents make it easier for us to extract important information that can benefit our clients.

We can also learn important things that could make your pre-auction offer more attractive. For example, do the sellers want to offload some of the furniture and other chattels in the sale? The seller might also have requirements around the settlement period. Making your offer subject to a settlement timeframe or other contract conditions that meet the seller’s needs can help deliver the result you want.

4. Know the competitive landscape

Say you’ve found a property that meets your wishes, and it’s something that doesn’t come up often in the market.

At this stage I am wanting to gauge the genuine level of interest in the home. You realistically want to get a feel for how many buyers might be out there who are intent on making a proper bid at auction.

Again, this takes keen skills and experience to assess. A combination of knowing the market and interpreting any selling agent information is key. If you think there’s very little genuine interest in the home – particularly into the third week of their marketing campaign – then I’d be more tempted to considering a pre-auction offer under the right circumstances.

How to make a pre-auction offer

Now you’ve determined that the property is the one for you, let’s take a quick look at some of the guidelines buyers’ agent adopt for a pre-auction tilt at the property.

First up – you’ve got to be realistic with your first offer. You’re very unlikely to “steal” a property before auction. The seller and their agent have committed to the campaign and after testing the market they’ll have a good idea of its worth.

So, make sure your price and terms are strong enough to convince these two key parties – i.e. the vendor and their agent. Why does the selling agent need to be swayed by your offer? Well, they are the owner’s key market advisor. A convincing first offer may well see the selling agent advocating on your behalf to the seller.

Next is communicating to the agent about when you need a response from the seller. I’d suggest you find a practical balance between being demanding and being flexible. You want to give the seller enough time to think about your offer, but you also can’t let them keep you hanging around endlessly waiting for a reply.

You still need to create a feeling of FOMOOY for the seller – that’s Fear Of Missing Out On You. So, keep looking at other properties even after you’ve submitted the offer. If you have another genuinely interesting listing you want to consider, let the pre-auction selling agent know. If they’re aware of your deadline, they could be compelled to move a bit quicker on a response.

It’s also essential that you are unemotional during pre-auction negotiations. This can be a tough if you’ve fallen in love with the property. This is why having a buyers’ agent is so crucial. We take all the pressure off you and often find a way to put that pressure back on the seller.

We will also be far more accurate in our assessment of the home’s value due to our experience and our detailed approach to market analysis.

Buyers’ agents are also skilled at “reading the room” during negotiations. We are fully aware of market conditions, and the levels of demand for a certain property type. We’ll have seen what’s happening at the open homes and will have asked the right questions of the selling agent to form an accurate opinion on the seller’s motivations and needs.

A buyers’ agent also knows how to negotiate with a selling agent in a professional firm-but-polite manner. We deal daily with these agents, having built these relationships over many years. The tone of your pre-auction offer in an email or on the phone can impact your chances of success, so our involvement is key in finding the right approach. It can be the difference between a deal proceeding or falling over.

Remember this – negotiation is an art. Knowing when to push and when to pull back takes practice, particularly when up against another professional negotiator like a selling agent.

If you’re keen on a home that’s going to auction, there’s simply no better way of maximising your chances than having a buyers’ agent on your side. We can quickly assess the likelihood of success a pre-auction offer will bring and advise you on the best course of action in securing the home you want.

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