Should I make an early offer on an auction property?
Operating in an auction-heavy market such as Sydney, we often find ourselves in the position of having to offer “blind” prior to scheduled auction day. There are so many factors that determine which way we’re likely to negotiate, and though going to auction can turn out to be the right choice, there are sometimes circumstances that dictate our actions in deciding to make early offers instead. Every auction sale is different and so requires differing strategies. In the past, early offers were almost relied upon by selling agents as a minimum indicator of final sale price come auction day. But in the current slower Sydney housing market, it can be hit and miss with auctions. With clearance rates tumbling to ten year lows for this time of year (hovering between 50-58%) selling by auction is certainly no longer considered an easier option for sellers to flush buyers out early. As one selling agent wrote recently in his own blog, “The only thing more nerve-wracking than an early offer is NOT receiving one”. A clear indication that it’s not all roses out there for vendors anticipating easy sales in this market.
It can be a real test of expertise and mettle by the selling agent in advising their sellers to either accept an early decent offer or proceed to auction and run the risk of losing the best possible buyer early on. After all, most buyers prepared to make offers pre-auction have been in the marketplace for some time (and aren’t first timers) are organised, have their finances in order, understand that any contract to be exchanged prior to auction requires a waiver of any cool off period and have some experience under their belt. As with our buyer clients, educated and serious buyers know what they want and sense the opportunity to make early offers when the time is right. Sellers, on the other hand, are new to the process and can run the risk of rejecting decent early offers, as they believe waiting may draw out even more dollars come auction day. What happens, however, when the early-offer buyer finds a better property in the weeks prior to auction? What if they withdraw their offer and interest (as we have done with clients) and the seller’s opportunity disappears? Once a property passes in at auction or fails to reach reserve, buyers are very reluctant and even suspicious, tagging the property as “overpriced” to begin with. Nothing like a failed auction to be considered a dud campaign overall.
An early offer can inadvertently build complacency in a vendor. Selling agents know that genuine buyers who are willing and able to make an unconditional, finance-approved offer are worthy of respect and consideration and accordingly will advise their sellers here, but it’s also up to the buyer to both justify their offer and put a timeframe on it, to ensure it’s taken seriously. There’s little point setting the benchmark on price for other buyers if the selling agent uses it to their advantage days before auction. Hence the importance of getting in early, preferably the first 1-2 weeks of a typical 4-5 week auction campaign.
If you’re not a fan of auctions and/or have had poor experiences and prefer to know earlier if it’s a YES or NO on fair market price, then making an early offer may be the way to proceed. Just make sure you have everything in order (and this includes a contract review with 66w waiver form, necessary building/pest/strata reports, finances in order, ready deposit) and be confident in your approach. Be prepared with justifiable comparable sales, current market data and compelling reasons why the vendor might want to consider your early offer. Finding out the vendor’s motivation can sometimes be key to also solving any problems they may have in offering suitable or flexible terms that work in their favour. Remember it’s not always about price. We recently bought for a client that was $8000 less than another offer, however our 28 day settlement term worked in the vendor’s favour far more than the 60 days on offer from the other party.
Remembering too that, for sellers, the hardest offer to accept is not the one just below their aspirational price point, the hardest offer to accept can be the one which is one actually lower than an early offer they previously rejected. Buyers reserve the right to pursue other properties in the meantime and may well be off running to pursue a more realistic seller. As Kenny Rogers sang in ‘The Gambler’
“You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run”
As property buyers you need to know your walk away price in order to secure good buying in any market. Whether or not that’s with an early offer or a highest bid at auction, it’s up to you to decide when to and how to negotiate. And just maybe you may be the early bird that catches that juicy worm. Happy buying!