Welcome to Property 101. It’s not uncommon for a property that is listed for an upcoming auction to be sold prior to the planned auction day. But how does this happen and how can you improve your chances of purchasing a property prior to auction? In this blog post we’ll answer these questions.
Why would someone choose to sell prior to auction?
There are various reasons why a vendor may choose to sell a property prior to auction:
- The agent may have advised the seller that there are very few potential buyers and they recommend entertaining all offers prior to the auction day. Example: We were recently interested in purchasing a property in Ashgrove which comprised a flat 607m2 block on a quiet street and an old character home that required a full renovation. Given the cost of materials and availability of builders at that time, we were advised by the selling agent that interest had been low on the property. This provided us with the insight that allowed us to make a pre auction offer, with conditions, which was ultimately accepted and our client purchased an ideal investment property for a great price. Our clients are currently renting this property out while that plan their future renovation.
- The seller may find an auction stressful and may not want to make a potentially difficult decision on the actual day of the auction.
- The seller may have concerns about an upcoming event, such as an interest rate announcement or federal government election, and wishes to have the property sold prior to that date.
- If the offer is received early in the auction campaign, it may allow the seller to have an unconditional earlier than waiting for the auction day. Example: We purchased a property at Paddington before auction and the vendor had already purchased their next property. Given that our offer was received in the first week of the auction campaign, the vendor was keen to negotiate with our client and a contract was agreed upon and the property went unconditional 2 weeks out from the planned auction day.
What are the benefits of purchasing a property prior to auction?
Buying a property prior to auction has several advantages:
- You can include clauses in the contract, such as finance and building and pest, whereas if you purchase a property at auction, the property is purchased without any conditions.
- There is a lack of competition, which could mean that you can secure the property at a lower price than what you might have to pay at an auction.
- Your emotions can be controlled, rather than getting carried away from you in the excitement of the auction day.
- You may not be able to bid on the day of the auction, as you will be out of town, or you require the finance clause to be included so that your financier can provide approval for your loan.
- You have caught many other buyers unprepared, as they are sitting back waiting for the auction.
- Lastly, although there is no guarantee of success, it can be a significant advantage being able to purchase a property prior to auction day, without the competition and for a lower price.
How to make an offer to purchase a property prior to auction?
Here are some tips on how to make an offer for a property prior to auction:
- Find out if the agent and vendor will consider a pre auction offer: Knowing the history of an agent in relation to pre auction offers is helpful in understanding how they will deal with a pre auction offer. While some agents always take their listings to auction and won’t entertain offers prior, others are happy to present offers before the auction and, depending on the amount of interest from buyers and the offer amount presented, will encourage the vendor to consider serious offers.
- Undertake your standard due diligence: Conduct a thorough analysis of the property’s sales evidence and ascertain what the property is worth. Check for flooding, stormwater, sewerage, easements, water, building approval etc.
- Have your finance in order: Speak to your finance about your loan approval and also the time required for finance. Given the upcoming auction, you may need to have a shorter than normal finance term to make sure the property can go unconditional before the auction date.
- Building and Pest condition: As the majority of properties going to auction will have a building and pest inspection provided, you will need to decide if the report provided is acceptable, or if it is wise to obtain your own.
- Competitive offer amount: Based on the amount of competition and interest on the property, you will need to decide on your offer price. Asking the agent questions to find out if other people have made offers, how many people are registered for the auction etc. will help you arrive at your offer price. A thorough analysis of comparable sales evidence will provide you with the confidence you are not overpaying for the property.
- Offers not always entertained: While many agents will encourage pre auction offers, it’s essential to be aware that some agents may have no intention of accepting an offer unless it far exceeds their expectations or the reserve price. It’s best to play your cards close to your chest. To avoid back and forth negotiation tactics, you can also tell the agent that it’s a best and final offer.
When to make a pre auction offer?
As an experienced Brisbane Buyer’s Agents, we evaluate each property we are considering buying against the goals and budget of our clients. If the circumstances align and we feel that the agent and vendor will seriously consider our offer, we recommend making an offer prior to auction. The strength of the market at the time and discussions with the selling agent regarding the seller’s appetite for pre auction offers versus auction, plays a significant role in our recommendation.
Purchasing a property prior to auction can provide many benefits for buyers, including the ability to include clauses in the contract, a lack of competition and emotional control. To make an offer prior to auction, buyers should undertake their due diligence, have their finance in order and make a solid offer that goes unconditional prior to the planned auction date. As a Buyer’s Agent, we are regularly helping buyers navigate the pre auction purchase process and increase their chances of success.
If you are considering purchasing a home or investment property in Brisbane or South East Queensland and would like the assistance of an experienced Brisbane Buyer’s Agent that can help you find the perfect property, that meets all your requirements for the right price, please don’t hesitate to contact us.
We look forward to hearing from you.
Sam Price, Buyer’s Agent and Director – Templeton Property.