Despite auctions only being a small percentage of total property sales in Australia, they achieve high success rates for owners.  That’s because popular properties in popular locations go to auction for a very specific reason – demand.

No wonder then as auction competition rises, a higher proportion of these properties are now being sold prior to auction day.

This is very disheartening for the many people diligently waiting until auction day to buy their dream home, only to miss-out because it was sold privately beforehand.

To stay in the running, a comprehensively planned and well-researched auction strategy should now include being prepared to make a pre-auction offer.

Let’s take a look at why some houses are sold before auction.

Related Reading: 'Selling at auction - the winning edge?'

Seller certainty

The main reason an offer will be accepted prior to auction day is certainty, with less stress for good measure.

Aside from receiving an offer that is too good to refuse or simply getting cold feet, some other reasons a seller may be willing to negotiate prior to auction day include:

  • External factors such as an interest rate announcement or changes to Government policy may spook market confidence.
  • Other influences are creating market volatility and auction-outcomes are less predictable.
  • Enquiry from new buyers has shrunk and market showing signs of slowing.
  • Seller has committed to next property before auction day and now needs the money.

To avoid the fear and risk of an auction, many sellers may jump at a great offer with attractive terms and conditions.

Early-offer knockout

Big crowds and strong competition means many people are missing out.  Bypassing the auction may be your winning move.

If your research has been thorough and you are confident of knowing the local market, then you are in a strong position to make a calculated offer prior to auction day.

Some quick-wins for doing so are:

  • Reduce or eliminate the number of people competing against you.
  • Avoid the emotion that drives prices higher and over budget at auctions.
  • Reduce the likelihood of paying a hefty premium.
  • Reduce cost of time by no more searching and waiting for the right property.
  • Financial control and stay within budget.
  • Negotiate contract terms and conditions more flexible than auction sale.

Knowledge is power

Be prepared that pre-auction negotiations can be just as anxious as auction day itself.  Things will happen quickly and probably inconveniently.  Your best weapon is to be organised and decisive.

Timing is crucial so be ready when the real estate agent contacts you and confirms the seller is accepting offers.  You may only have a few hours to negotiate.

By now if you were planning to bid at auction, you will have conducted a thorough assessment of the market and established a true value of the property.

Some key things to consider about making an offer before auction day include:

  • Ensure finances are organised.
  • View property multiple times.
  • Make your-self known to real estate agent.
  • Don’t reveal your budget to them.
  • Complete all pest and building inspections.
  • Register your interest early.
  • Ask to be kept informed if taking offers.
  • Ask reason for selling early.
  • View contract and get legal advice.
  • Ask what terms and conditions will appeal to the seller.
  • Consider a larger deposit as a sweetener.
  • Ask to see other offers.
  • Be fair and reasonable.
  • Make decent offers in writing and avoid a ‘Dutch auction’.
  • Stay objective.
  • Use time wisely, set deadlines or walk away.
  • Consider using a buyer’s agent.

No different to standing at an auction, your best offer should be on-the-money to demonstrate you are a serious contender.  Don’t waste peoples’ time or muck them around.

Based on a calculated judgement of the current market, a fair offer would be at or above your reserve price estimate and below the price you consider the auction may reach.

Starting with lower offers in a falling market would also be appropriate.

Related Reading: 'Surviving auction day'

Summary

Through the process of doing the right amount of homework prior to attending an auction, it should become apparent that making a fair and reasonable offer is a good tactic.

Your assessment of the market situation should be realistic, as owners holding a great property in a highly sought-after location know auctions bring premium prices.

Be confident in the valuation of your offers, but know when to walk away and continue your search.

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