So You Want to Make an Offer Pre-Auction?
When facing a property listed for auction that you’re keen on, and sensing competition, making a pre-sale offer can be a strategic move. Here’s a step-by-step guide to navigate this scenario:
Understand the Market Dynamics:
Recognize that each property and market is unique. Agents initially test the pricing waters based on comparables and their beliefs about the property’s value.
Condition the Agents and Vendors:
The process starts on your first contact with the property. Make a strong, yet reasonable, offer to gauge the market and capture the attention of both agents and vendors.
This strategic offer acts as a ‘bait ball’ to kickstart serious discussions and potentially influence the auction reserve price.
Utilize the ‘Dutch Auction’ Effect:
A reasonable offer can trigger a ‘Dutch Auction,’ where agents try to surpass your offer, potentially annoying other buyers and creating reputational risks for the agent. This approach can force an outcome. Always keep some purchasing dollars in reserve. Never put forward your best and final offer… until it is!
Timing Matters:
If the auction is one week away with good interest levels, agents may not entertain offers unless they are substantial and come with a premium attached.
The Time Bomb:
This is a cornerstone of any effective offer. The validity of your Offer for a limited time. Create a sense of urgency or FOMO (Fear of Missing Out) with the offer.
However don’t waste this bullet if your offer is not fully complete with all criteria clearly outlined. Do not make this Offer unless you are satisfied this is the property and you have done your due diligence.
Understand Vendor Motivations:
Consider the property’s condition, vendor circumstances (e.g., inherited property, deceased estate), and marketing agent’s approach to devise a winning strategy. Consider the vendor’s reasons for selling and specifically any time consideration they might have or need. Price is not always the sole determiner.
Conduct Thorough Due Diligence:
Have pest and building reports ready, know the property’s weaknesses, and estimate the cost of alterations and repairs.
Identify the vendor’s concerns or timing needs and tailor your offer accordingly.
Develop and Execute a Strategy:
Create a theory around the property’s position and the agent’s motivations, strategize your approach, and execute with confidence and clarity.
Review Auction Terms and Contracts:
Have contracts reviewed and assessed according to auction terms, such as deposit amount (e.g., 5% versus 10%), penalty interest rates for non-performance (e.g., 8% versus 10%), and release of deposit if suitable.
Identify any “special conditions” that need to be determined and ensure they align with your requirements.
Make Your Offer ‘Frictionless’:
Strive to make your offer as easy and straightforward as possible for the vendor to accept. Avoid adding unnecessary complexities that may deter the vendor from accepting your offer.
The goal is to make the vendor’s decision-making process as smooth as possible, increasing the likelihood of them saying “yes” to your offer.
Be Mindful of Transaction Walls:
Avoid creating unnecessary barriers to the transaction. If the process becomes too cumbersome or complicated, the vendor may opt for a simpler offer from another purchaser.
Keep in mind that simplicity and ease of transaction can be key factors in securing the property.
The Agent is Difficult and Not Accepting My Offer:
Sometimes the Agent may be under instructions not to accept any Offers under a dollar amount or they are committed to an Auction or Expression of Interest process. In other rare circumstances… advise the agent will forward your Offer directly to the vendor’s solicitor (this will create an uproar as the agent is circumvented and shows a lack of control…. sometimes it has to be done)
A Frictionless Offer can be very tantalising to a stressed vendor
Remember, the auction represents an unconditional sale, and buyers are expected to take the property “as is-where is,” relying on their own inquiries. This principle, known as caveat emptor, emphasizes the buyer’s responsibility to conduct thorough due diligence and accept any associated risks.
Let’s discuss your situation – I am sure I have a solution. Feel free to get in touch… [email protected]
