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Should I make an offer before the auction?

18 March, 2024 / Category: Blog

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Recently, there’s been a surge in pre-auction offers, a sign of growing buyer activity and the return of competitive auctions. Many home buyers have spent over a year in search of a home. The scarcity of available properties in 2023 made this particularly pronounced. This was especially true for buyers looking for A-grade family homes in blue-chip areas. As market confidence returns this year, along with an increase in property listings, we’re observing a keen interest among buyers to secure quality properties as soon as they come across one rather than waiting for the scheduled auction.

In this market insight article, we’ll walk you through the process of making a pre-auction offer, including what you need to know before making the offer and what to expect after you have made one. 

What is a pre-auction offer?

A pre-auction offer is when buyers make an offer during an auction campaign before the auction day. Once a pre-auction offer is submitted, various scenarios could occur, and understanding what these next steps could be before submitting your offer will be key to your success. A vendor might accept a pre-auction offer for various reasons:  they receive one or more compelling offers, because they need a speedy settlement, or because they would like to reduce the stress associated with the auction campaign. They may also choose to decline the offer on the bassis that they believe they will get a better result at auction. 

How do I decide if I should submit a pre-auction offer?

First and foremost, it’s essential to understand the property’s value, be aware of the steps that follow if you decide to make an offer and ensure you are fully prepared to make an unconditional offer.

  1. Be informed.

To gauge the property’s value accurately, analyse recent sales in the area and have a clear grasp of your financial limits. Communicate with the selling agent to ascertain whether the vendor is open to pre-auction offers and to understand the subsequent process if you were to submit one. Knowing whether your offer would lead to a boardroom auction or a highest and best offer situation is crucial, as it will influence the value of your initial bid.

  1. Be prepared

Ensure your finance is secured. In a pre-auction context, offers contingent on finance are typically not entertained. It’s vital to have your finance pre-approved, positioning you to present an unconditional offer confidently.

Arrange for necessary inspections. Before submitting your pre-auction offer, organise a building and pest inspection. This step is crucial to fully understanding the property’s condition and ensuring you make an informed and appropriate offer.

What is the process after I submit a pre-auction offer?

After concluding your research and due diligence on both the property and the vendor, and you’re prepared to submit your offer, it’s important to know what comes next. There are several possibilities:

  1. Boardroom auction

If the agent identifies several serious buyers and receives an offer that meets the vendor’s expectations, they may reach out to all interested parties to invite them to a boardroom auction. In this scenario, the three to five serious buyers convene—away from the eyes of spectators—in a private setting, often either in the real estate agent’s boardroom or a designated room at the property in question. The process then mirrors a traditional auction, albeit in a more intimate setting, where the highest bid secures the property. Typically, a boardroom auction results in a sale since it’s initiated by the vendor’s acknowledgment of a satisfactory offer.

  1. Highest and best offer

Should the agent receive an offer that’s on the verge of acceptance by the vendor, they might contact all interested parties, requesting their “highest and best offer.” This enables the vendor to either select one of these offers for acceptance or decline them all, opting to proceed to the auction. For buyers, this situation presents a unique challenge: deciding on the value and terms of their offer. Unlike in a boardroom auction, there’s no insight into what competitors might submit, resulting in a constrained view of the property’s current market value. This lack of visibility makes it difficult to gauge how aggressive or conservative one should be with their bid.

  1. Decline the offer

If the vendor deems the offer insufficient, they will outright reject it and proceed with their marketing campaign for the property.

  1. Accept the offer 

If the real estate agent perceives a lack of serious interest from other buyers and finds the offer acceptable, the vendor may opt to accept it outright or request minor adjustments before finalising the deal.

Will I get a better deal if I put in a pre-auction offer?

Submitting a pre-auction offer can benefit you by circumventing additional competition, although it’s somewhat more intricate than a standard offer. One challenge is the absence of a price guide, which can leave you uncertain about the appropriate range for your offer.

With expert guidance, it is possible to negotiate a favourable price and/or terms through a pre-auction offer. However, success isn’t guaranteed, and with limited information, you risk overpaying compared to waiting for the auction.

If you’re considering making a pre-auction offer, we recommend contacting us to guide you through this complex process. Contact our Buyer’s Advocacy team today for a free 15-minute discovery call to discuss how we can help you secure your dream home.

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