How to make an offer before auction
Most property buyers don’t like auctions. They worry about getting caught up in a bidding war and will often do anything to avoid the pressure. But is it always in your best interests to buy before auction?
The answer is: not always, so it’s important to understand how market conditions affect things before you act.
In a hot market it’s really hard to buy a property before auction. Agents prefer to avoid taking offers because they hate messy negotiations with multiple buyers and the possibility of being blamed by those who miss out.
On the other hand, in a slow market, it’s usually very easy to buy a property before auction. In fact, some agents will sell as many as 80-90% of their listings before auction. Now of course, you have to wonder why.
Well, I’ll tell you why. When buyers are thin on the ground, there’s often only one serious buyer for each property. Before the auction, you won’t know you’re the only one interested, but the agent will. And a smart one will engineer an offer from you rather than let you get to auction and realise you’re their best buyer.
How do they do this?
Be on the lookout for an agent suggesting the vendor has seen something that they’d like to buy, so they’re motivated to take an offer before auction day. Another common clue is when they suggest that other buyers have made offers but they want an extended settlement, which doesn’t suit the vendor.
One of the benefits of an auction for buyers is that they are transparent. Whereas, if you make an offer beforehand and the agent says somebody else is interested, you’ll have to take their word for it. If you call their bluff and that buyer does exist, there is a risk that they’ll sell it to them and not you.
But if you keep your cool and hold your fire until the auction in a slow market, there’s a good chance you won’t have to compete and even if you do, it’s less likely to be frenetic. Auctions are a lot less scary if you are well prepared. I’ve created a free eBook for you, the link is in the notes below.
Now, if you still want to make an offer before auction, it’s important to get the timing right.
Week one in an auction campaign is usually too early. The owner won’t have had enough exposure to the market to be inclined to sell unless your price is ridiculous.
The last week of the campaign is not a good time either because there’s a greater risk of competition. Any other buyers that are interested in this property have also had the opportunity to get ready to act.
However, if the agent is encouraging you to make an offer in the final week it's a clue that you might be the only buyer or at least the strongest buyer. In this case you'd be in a better position if you actually wait and go to auction.
The optimum time, if you are going to make a pre-auction offer, is in the middle of the campaign, usually the second week. The vendor is more likely to feel that they've had enough exposure to the market. It's also before most other buyers get themselves ready to compete with you.
You also need to know that all agents manage offers differently. To maximise your success, ask what process the agent will follow once you have made an offer and don’t try to play games.
Lastly, if you do make an offer, make sure you are ready to sign the contract unconditionally, because you’ll need to buy under auction conditions.
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