A lot of buyers are really scared about going to auction because they fear being outbid or they’re just daunted by the prospect of performing in public. Now because of this, a lot want to make an offer prior to auction. They think this is the best way to go about it. So, how do you make a pre auction offer and is it always the best strategy?
Well, sometimes it is, sometimes it isn’t. There are four things that you need to consider when asking ‘ how do you make a pre auction offer? ‘
Number one: Market Conditions
In a hot market, it might be a good idea to consider trying to buy before auction, because if you wait until the auction, there’s likely to be a lot of competition, and you do have a higher chance of being outbid. But in a slower market, you might end up being the only buyer there, or the other buyers may not actually want to compete that hard. You might actually do better by going to auction.
The first thing to consider is what are the market conditions at the time, and don’t just make an offer purely because you’re scared.
Number two: What is the property worth?
Of course, agents will quote a figure. They might have accidentally over-quoted it, but usually they underquote. Now if you think the property is worth a lot more than the agent is quoting, then you might have a good opportunity to buy that prior, because your offer, based on what you know it’s worth, will sound very attractive to both the agent and the owner. And you know, because you’ve done your research, that if it gets to auction, you’re likely to have to pay more than that. So that might be a good reason to make an offer prior. How do you make a pre auction offer under these circumstances? Make it strong enough to get a quick answer from the agent and exchange contracts asap.
However, if the agent is quoting a figure and you think the property is worth around the same or maybe even a little less, then you have nothing to gain by making an offer prior to go to auction. You’re going to do better by going to auction.
Number three: What’s the agent like?
Is the agent likely to work with you on this or are they likely to be difficult to deal with? Ask the agent how they handle pre-auction offers, because if they say to you that they are going to “shop it out” so that every buyer knows that every other buyer has offered, then you potentially are going to end up in a blind auction scenario. You’ll be on the end of the telephone, where you can’t see or hear where those other buyers are prepared to go to. You’d be better off going to auction under those circumstances.
If however, the agent is keen to work with you and is going to give you some set parameters and clear guidance in terms of what their process is, then that’s more likely to be a scenario to make an offer prior to auction. But a word of warning: be careful if they’re too eager. You might be better to go to auction because you could be paying too much if you offer first.
Number four: Are you ready to sign a contract?
If it looks like making an offer prior to auction is a good idea, then you need to get ready before you make that offer. You need to be ready to actually buy the property, and you need to buy it under auction conditions. How do you make a pre auction offer once you are ready to sign a contract? Do all your due diligence, and then when you make that offer, be prepared to put it on a contract with your deposit cheque and put a deadline on it.
Published March 2018
DISCLAIMER: Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.