A pre-auction offer can see you beat the competition – but you need to have plenty of ducks in a row to be sure you can follow through.
Planning to buy a home at auction is always a gamble. Only one buyer will walk away the winner. As property prices rise, plenty of home buyers aren’t taking that chance, and in some areas up to one-third of homes listed for sale at auction are being snapped up before auction day.
In a rising market, where supplies of listed stock are tight, it’s no surprise that more homeowners are choosing to sell at auction. It’s a decision that can deliver spectacular results, with homes often selling for well above the reserve price.
Of course, the conundrum for sellers is that there are no guarantees a property will sell under the hammer. If it doesn’t, the owner still wears the cost of the auctioneer’s fee, followed by an ongoing sale campaign. This uncertainty can give buyers a strategic advantage. Making a pre-auction offer could tempt the owner to sell prior to auction. But it’s a step that calls for careful planning. Here are four steps to help make your pre-auction bid a winner.
We give you our 4 steps for a pre-auction strategy below:
- Be prepared – have your loan pre-approved
There’s not much point making an offer if you can’t follow it through with finance to complete the purchase. The beauty of having your loan pre-approved is that you can make an offer with confidence, and it sends a clear signal to estate agents that you’re a serious buyer who can act quickly.
- Do your homework
To give your pre-auction bid a real chance of success, you need to understand the local market and have a reasonable idea of the property’s value. A low offer will be rejected, but you don’t want to offer too much either. A Mortgage Choice broker can help by providing local market insights and detailed property reports.
As with any property purchase, it pays to have the contract of sale reviewed by your solicitor or conveyancer before you make an offer. That way you won’t find any hidden surprises after you’ve signed the contract.
- Don’t be forced into a ‘Dutch auction’
A Dutch auction is when two or more potential buyers make ‘blind bids’ prior to the property going to auction. Rather than enter this sort of situation, it makes sense to wait until auction day for an open and transparent bidding process.
- Be prepared to walk away
If a seller rejects your pre-auction offer, resist the urge to keep upping the offer. It’s the equivalent of bidding against yourself at auction! Offering to pay more also lets the seller know that at least one party is very enthusiastic about the property, and this may just encourage them to hold off until auction day.
Instead, know your price limits, and don’t let FOMO drive your offer. It may be that you have to hold out until auction day. But even if you miss out on one property, chances are you could find another dream home just around the corner.
Call your broker to know which lenders offer pre-approval – and the requirements they look for. Having your home loan pre-approved could help you get ahead of the pack and get you into your dream home sooner.