What to consider before submitting that pre-auction offer
When auction volumes and clearance rates are high, it’s generally an indication that auctioning is a great way to sell a property. However, what if you’re sitting in the other camp, the buyers’ camp. How do you strike a deal before the auction and land the property of your dreams? Well, that’s where the pre-auction negotiations begin.
Pre-auction negotiations – when are they right for you?
Pre-auction negotiations are not for everyone and there are things to consider before heading down this path. So, how do you know if it’s right for you? If you can say yes to any or all of the below then you’re probably safe to consider making a pre-auction offer if you –
Have no confidence bidding at auction
Are very competitive and get carried away on your mission to win
Get easily tempted and are likely to forget about that pesky budget
Sense that the seller has made a commitment elsewhere
Determine that the seller is in a rush to sell the property
Want to have the comfort of a cooling off period
Would like to include conditions such as a building or pest inspection
Notice a lack of interest and not many other parties at open for inspections
But why would a seller accept a pre-auction offer?
There are a number of reasons why a seller may accept a pre-auction offer. These can include –
An offer that meets their expectations or is higher than their expectations
Wanting to avoid the stress of auction day
The security of a realistic and firm offer
A commitment elsewhere and the earlier sale suits them
Wanting a quick sale
Is it ever a good idea to submit a pre-auction offer?
Some people might think that submitting a pre-auction offer will make them look too eager. They convince themselves that the seller will just take their early offer as a sign of how hot the auction is going to be. But, as we can see from above, there are certainly situations where the seller has reasons to accept a pre-auction offer.
In addition to the seller’s motivation, a pre-auction offer can be a great way of saving yourself the stress that comes with auction day bidding. It also removes the temptation to offer just a little bit more, and more, and more… And before you know it you’re $20,000 above your budget!
Submitting a pre-auction offer means you can be a bit more level headed. You can have time to think carefully and strategically about the amount you want to offer. It can also mean that you get a little head start on your competition. Plus if your pre-auction offer is accepted you’ll likely be able to get into your new home sooner.
Another huge benefit of making a pre-auction offer is having the cooling-off period to fall back on if you change your mind. This doesn’t apply when you buy at auction.
How do I determine a price to submit as my pre-auction offer
Of course, just because a pre-auction offer is submitted does not guarantee that the seller will take it. But that shouldn’t at least stop you from giving it a go if you feel it’s the right thing to do. Sellers will often find it hard to refuse a firm and realistic offer when it’s on the table. However, some sellers will hold out for auction day hoping to achieve a higher price.
If you can offer a realistic price that may just tempt the seller with attractive conditions attached, your pre-auction offer may just be good enough to secure you the sale. Do you research and review recent sales of comparable properties in the area to help you determine an offer price that may meet the seller’s expectations. It’ll also help you determine whether you can afford to make the offer in the first place. Keep in mind that it’s always a good idea to leave a little room for negotiation too.
Once you have determined a price, submit your pre-auction offer in writing to the agent (it’s always good to have finance pre-approved with your lender by this point if you are going to need a mortgage).
How should I negotiate if the seller rejects my first pre-auction offer?
Well, first of all know when you’re going to walk away and stick to this. As tempted as you are to get the property, know when to say no.
But, in the meantime, timing can be everything so be prepared for your offer to be accepted. This can mean having the deposit ready to transfer on the day that you get the acceptance. Whatever you do don’t leave it for 24-48 hours. By that point you might be up against other interested buyers.
If you have to you can also consider offering the vendor a more attractive offer by waiving the cooling off period or lessening your conditions. You should always check with your conveyancer or solicitor before doing this so that you understand the implications.
At what point is it best to walk away?
Unfortunately, there are always going to be some sellers who just won’t accept a pre-auction offer, even if it’s a fantastic offer. If you reach your budget and the seller still won’t take your offer, walk away. If you’re being asked to waive all of your conditions and/or cooling off period and you feel uncomfortable doing so, walk away. It’s never worth buying a property if you’re going to regret the purchase or if you can’t afford the purchase.
Always remember that property is a serious investment and that you should feel confident and comfortable entering into a purchase contract. If at any point you feel unsure or confused, speak to your conveyancer or solicitor or another objective party.
If your pre-auction offer is accepted, hooray! Congratulations on being a great negotiator and getting the deal across the line.
If however, your pre-auction offer is rejected don’t get too disheartened. Ask the agent to keep you informed of any developments, keep attending the open homes, and attend the auction if you’re still keen to bid. Who knows, you may just pick it up at auction after all!