Auctions are stressful. There’s so much pressure to stick to your budget, make decisions on the spot, and not cry in front of strangers.
It can be hard to stay in control when your dream home is slipping away from you. What’s an extra $20,000 when you’ve already decided what colour to paint your kids’ bedrooms? Or $30,000 because you’ve started a bidding war that your competitive streak can’t lose? In a hot market, vendors are often keen to capitalise on interest from multiple buyers. Plus, the uncertainty of bidding at auction makes putting in an offer ahead of time seems pretty attractive.
Making a pre-auction offer is simple: you put in writing what you are prepared to pay for the property, then submit your offer a week or two before auction day. Your job is to make the offer more appealing to the vendor than watching would-be owners in a property Hunger
Games on their lawn. How? We’ve identified three important steps to follow.
Step 1: Know the market
Buying a house before auction requires a competitive offer. The listing agent may have provided an estimate of the sale price likely achievable at auction, and the statement of information will also give you an advertised range. Remember these are estimates and could be low-ball figures, or could change with feedback at open for inspections. It’s up to you to work out what the property is really worth, and that means lots of research.
Use real estate websites to check out the sale price of nearby properties that have recently sold, either at auction or private treaty. Quiz the agent on how many contracts have been issued and ask why the property is being sold. If the vendor has already purchased elsewhere, for instance, they may be more willing to consider a pre-auction offer. Importantly, ask if any other offers have been made and, if so, what sort of money is on the table.
Once you have a firm idea of what the property could sell for, the level of buyer interest, and you’ve started saying the property address out loud in your sleep, make a strong offer: close to your buying limit but still with some powder in the keg.
Step 2: Don’t show your hand
Keep your cards close to your chest. Until the agent knows what you’re prepared to spend, you’ve got room to negotiate. It’s their job to get the highest possible price for their client so watch for tactics to uncover your real maximum budget and stay level-headed. Remember, we’re trying to avoid the stress of an auction, so try not to create a mini bidding war between you and potential buyers you can’t even see.
Step 3: Be organised
Pre-auction offers are typically unconditional, so you need to have all your ducks in a row before making an offer on a house. That means having the sale contract checked out by your solicitor and talking to your lender. You want to avoid having an offer accepted only to have your finance knocked back (especially if you only have three blocks of chocolate, as previously mentioned).
LoanCaddie can arrange conditional loan approval, so you can go into the negotiation knowing exactly what your buying budget looks like. Don’t be afraid to let the selling agent know you have this conditional approval – it shows you mean business. LoanCadie can help you arrange evidence of your conditional pre-approval before you start negotiating.
Going, going…
If your pre-auction offer is rejected, be prepared to walk away. It hurts, we know. But when the property does go to auction, it could be passed in and the agent may get in touch to see if you’re still interested. Either way, you’ll enjoy peace of mind knowing you haven’t blown your budget, and your next dream home is just around the corner.
Buying limits often take a hit when we make emotional decisions in the heat of the moment. Making an offer on a house before the auction can be a great way to manage the money you have to spend and negotiate the best deal for you and the vendor. Speak to LoanCaddie about conditional pre-approval, and you’ll head into negotiations with maximum buying power. This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.