When property markets are hot, vendors often choose to go to auction to try and attract the very best price they can. However, many vendors are open to accepting an offer prior to the start of the auction itself. That includes the days and weeks beforehand, not just on the day.
Do Your Homework
Most homes for sale by auction don’t have a specific price. If anything, the selling agents will likely offer a loose ‘price guide’, which, in many cases, is at the lower end of the spectrum. They do this to encourage as many people as possible to attend the auction and bid, in the hopes it will drive up the price. As a buyer, you need to know how much a property is worth, and that’s even more important when making a pre-auction offer. Use comparable sales from the surrounding area in the last 3-6 months. Ideally, you will find recent sales history for a similar property type, age, and also land component. When making a pre-auction offer, you can point to the sales data to help in your negotiation.
Avoid a Dutch Auction
If you’re hoping to swoop in early with a strong offer, you don’t want to get yourself into a situation where you are bidding against someone else. This is often termed a ‘Dutch auction’, and it is not all that different to buying a property at auction. All a sales agent really needs are two interested buyers, and that can be enough to push the price well above what it should be selling for, based on comparable sales alone.
Know Your Limit
If you’re going to be confident making a strong offer, it’s vital that you’re pre-approved for finance so you know exactly where you stand. If your borrowing capacity is limited, this can actually be a good thing in the negotiating process as you can simply state that fact to the sales agent and even prove it to them. It’s hard to make a strong offer, including appealing terms, if you don’t know for sure that a bank will lend you the money.
The worst thing you can do is get into a situation where you are continually upping your offer. In effect, you are just bidding against yourself. If it’s a matter of a few thousand dollars and the sales agent is clear that is what the vendor needs to make a transaction happen, then that might be the time to work with them. However, if you know your finance limit and also what you believe a property is worth based on comparable sales, then you should stick with that number.