Auctions: they can be the best way to snap up a property fast, but they also come with their fair share of stress and uncertainty.
Rather than letting the emotion of auction day take over and derail your plans, savvy investors know that their chances of success are far greater if they try making an offer on the property beforehand.
In fact, it could be the key to securing the best property at a price you can afford.
So how do you go about it – especially if the real estate agent is set on proceeding to auction?
First, do your research
You won’t know what amount to offer or how best to negotiate, without doing your due diligence.
This means checking out comparable properties so you can get a clear picture of what the property is worth.
Be objective so you can be unemotional about the transaction and make sure you consider like with like.
Does the property have a view?
Is it located on the water, backing on to a golf course, or on a main road?
The aspect, location and position of the home can impact its value, so put together a well-researched overview of what you believe the property is worth (and why) before you consider approaching the agent.
Follow the local market – and know your competition
Your pre-auction offer is much more likely to be successful in a buyers' market, so it’s vital that you’re up-to-date with the current market cycle.
If the market is saturated with similar properties, or the seller hasn’t achieved the interest they’d hoped, you stand a better chance of scoring the property prior to auction day.
Now, getting to know your competition can be tricky.
Unlike at an auction, where your fellow bidders are right where you can see them, when you negotiate privately it’s nearly impossible to know how many other interested parties there are.
In a sense, you’re flying blind – but you can make yourself stand out from the crowd.
For example, if you can, try offering a larger deposit.
This could make it easier for the seller to finalise the purchase on their next property and tip the scales in your favour.
You can also get an understanding of the types of buyers you’ll facing by attending auctions for similar properties in the area.
Are they investors or owner-occupiers?
Are they cashed up downsizing baby boomers who are likely to stump up cash offers are they or cash-strapped first timers who will need finance to get the deal across the line?
These insights can help you tailor your bid more precisely so you can pip them at the post.
Next… lay your cards on the table
I know, I know – your instinct may be to hold your cards close to your chest so you can negotiate hard.
But I’m going to go against the grain here and say that this is the perfect opportunity to be upfront.
You have nothing to lose and everything to gain.
This is because one of the benefits to buying prior to the auction is that you’re in a position to negotiate more flexible terms of sale, which could be a huge bonus for both you and the seller.
A longer or shorter settlement time, waiving the cooling-off period, or including rent-backs in the negotiation could be the cherry on top of your offer, and may just help you win the vendors over.
Get pre-approval and be ready to move fast
If the vendor is motivated to sell quickly and your offer looks appealing, then having your finance pre-approval sorted can be your best asset.
An immediate, painless sale that has them on their way to their next home in record time could be the clincher that sees them cancelling the auction.
It might also be worthwhile letting the real estate agent know your intentions.
Most auctions only have a handful of serious bidders, so let the agent know that if your offer is unsuccessful, you won’t be in attendance on auction day.
With one less buyer in the crowd, the viability of the auction may have taken a direct hit, which could be to your advantage.
Worried that a lack of interest or competition will impact the result, the vendor might reconsider your offer.
Some final tips before signing on the dotted line:
- The markets are favouring you
Currently, with our property markets being a little quieter, many vendors are getting nervous and you'll find more are keen to accept offers prior to auction rather than taken their chances on auction day.
- Check the cooling-off period
In some states, properties purchased within a few days either side of an auction aren’t privy to the same cooling-off period afforded to private treaty sales, so make sure you know where you stand before you sign that contract.
- Get in early
After a spate of successful open homes and a number of seemingly interested parties making enquiries, the vendors are much less likely to take their home off the market.
Rather than waiting until they’ve built up high expectations, strike early and hope that they are believers in the old saying “a bird in the hand is worth two in the bush”.
Selling early on saves them the stress of keeping the house tidy for inspections, and it means they can move on sooner, so it could be a win all-round.
- Keep it cool
Don’t let your emotions cloud your judgment, or you could end up paying far too much for the property.
Instead, keep a level head and use your research and negotiation tactics to finalise the deal.
After all, that’s one of the main reasons you’re trying to avoid the auction in the first place.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.