5 Minute Read.
Attending auction after auction can be heartbreaking and exhausting.
You convince yourself that the next property you bid on is ‘the one’. But more often than not it can lead to disappointment. You get outbid on your dream home and have to move on to the next property to reset your expectations.
But what if we told you it doesn’t have to be this way? Any seasoned property investor will tell you there are plenty of ways to increase your chances of making that winning bid.
Ultimately what you need is the right strategy in place. One strategy you might hear about is placing a bid before auction.
Over the early months of 2023, we’ve seen a rising trend in pre-auction sales. A pre-auction sale is when a buyer makes an offer on a house before it’s due to be auctioned off.
These bids often are on par with market value, hence the seller decides to stop open for inspection and close the deal. Back in February this year, Melbourne recorded a staggering 45 per cent of property sales made prior to their auction date.
Historically when the Australian property market faced high interest rates, prices tumbled due to an oversupply of property. As demand from buyers weakens selling agents switched from a auction selling to pre-auction offers.
In 2023 real estate agents are starting to responded to weakening demand from buyers by accepting pre-auction offers. For the record, no real estate agent wants to negotiate after a failed auction they lose control of the narrative and struggle to achieve high prices.
If the property market continues to weaken, pre auction offers are the future. So it’s important understand the outlook for the property market in 2024 & 2025?
Preparing for a pre-auction offer
A pre-auction bid is one of the best ways to ensure you have an advantage over your competition. Success in this strategy requires a few simple steps done smoothly and effectively. So we have summarized the ground work you will need to cover for property buying success.
Do your research
One thing that most agents agree on is that you should know what price the market is willing to accept. For any house you’re interested in, always check the trends in demand and selling prices over the last three months. Popular apps like realestate.com.au au and domain.com.au make it easy to check these numbers.
Knowing the average sale price for houses in a suburb can help you decide on the perfect bid amount. There’s no point bidding $100-200,000 over what the house could have gone for at auction. So try and establish what the average market price is for the area before you head straight into making a pre-auction bid. Make a more realistic bid that falls into the average price range.
Think about any future plans you may have for the property. Will you need to renovate? How much do you think these renovations will cost? You can answer these questions by finding out if there’s anything wrong with the property. Look for obvious signs like roof damage, sagging walls, and water damage.
If you’re buying in NSW or Victoria you can ask real state agents for a “statement of information”. This document includes an estimate of what the selling price will be based on recent comparable sales in the area. It should display the median house price for the suburb and details on three comparable property sales that took place within two kilometres and over the last six months.
It’s also worth noting that real estate agents are not allowed to quote a price range that’s more than 10 per cent between the top or bottom price. So with a few simple calculations, you can figure out exactly how much they’re being instructed to sell for. Some agents will try and get away with quoting a higher than average price by claiming that there are no comparable sales.
Decide on the best price for you
If you decide to make a pre-auction offer you should keep in mind that others might be doing the same thing. Unfortunately, a seller’s agent might accept multiple offers for a property. During this time they can reveal to each bidder what the offers have been so far. This is often done if the agent wants to drive up prices. This is referred to as a Dutch auction and is still a legal practice today.
When you look at the quoted price for a property, it’s worth noting that it’s usually too low or too high compared to what the seller really wants for it. What you need to do as a home buyer is offer a price that’s attractive to the seller. That’s why it’s so important to do your market research and figure out what a fair value for the house will be. At the same time, you want to offer a price that’s well within your price range. Don’t offer a value that’s already close to your limits.
When it comes time to put in an offer, it’s best not to put too much emotional energy into it. There’s no need to get hasty and put in higher offers if you feel you’re not going to get the property. You need to understand that there will always be other properties on the horizon. Your next dream property could only be days away from coming onto the market.
Get your pre-approval in order
In recent times there has also been a spike in demand for low rate mortgages. This spike has caused the average approval by lenders to increase from 20 to 60 days. As a buyer, you need to find the best lending rates and terms available. Doing this will help protect you from bidding too much at an auction.
Ultimately when a seller accepts your offer, you need to be ready to make a deposit. You will also need to settle within a reasonable time. This is why financial advisers recommend that you secure a home loan pre-approval before you make an offer.
Prove you are serious about your offer
When you make an offer it always helps to prove just how serious you are. Asking all the right questions is one way to go about it. You need to be thorough. Think about asking questions about the age of the house, limitations like easements, and what extensions have been done. Thorough questioning will show the seller’s agent how invested you are in the property.
This next tactic can be a little forward but hear us out. In some cases, potential buyers are willing to get straight to the point and draw up a cheque with a 10 per cent deposit. It’s a credible approach that also shows agents just how serious you are. An agent is likely to pay far more attention to a written offer compared to a verbal one.
Doing all the right checks and reviews can also show how serious you are about a property. Having a solicitor review the contract of sale is a good step in the right direction. This should always be done before you put in your offer. At this stage, property sellers can still consider other offers until the contract of sale is signed and exchanged.
Need help making a bid? Speak to a Buyer’s Agent from Wise Real Estate Advice.
