Buying before auction
Real estate is one of those loosely regulated industries whereas a buyer, it can often feel like absolutely anything goes, because in many aspects… anything goes!
Particularly when it comes to buying property prior to an advertised auction date. There are countless ways agents can manage this and it is completely up to them how they decide to process an acceptable offer prior to auction.
Without a crowd of competing buyers at public auction supporting your idea of the property value, it can be stressful knowing how to play your hand without putting all your cards on the table.
If and when you are involved in pre-auction negotiations, the first thing you need to do is ask the agent to clearly set out their rules of engagement. Exactly how are they going to manage the process from start to finish? Once you know this, you can then decide your strategy to secure the property.
Here we unpack a couple of the most common scenarios and how to navigate them.
Best and highest offer prior to set date and time.
This is usually triggered by a written offer received from a buyer which is acceptable to the vendor. Once this occurs, the agent may decide to call on ‘best and final’ offers by reaching out to all other interested parties / any buyer who has inspected the property, giving them until 5pm the following business day to present a written offer with the same or competing terms and conditions.
If the agent then receives an offer above the original, they will go back to the original buyer and without disclosing the price - give them a right of reply.
How an agent manages the process from there can differ from agency to agency. Some agents will not then give you the same right of reply so you will need to use your market knowledge and strategy to put forward an offer that you feel will beat out any possible reply from the original buyer. You are flying blind in this situation and need to know and be confident in the property’s value so that you have your clear walk-away price.
Dutch Auction
This is whereas above, the agent has received an acceptable offer which triggers negotiations prior to auction. Instead of calling best and final by a set day and time then giving only the original buyer the first right of refusal. The agent will go back and forth between the interested parties and without disclosing the price, let them know there is a higher offer on the table and give them the option to increase their offer. This can go back and forth a number of times and often ends with more than one disgruntled buyer, talk about flying blind!!
In many ways, unlike the more civilised circumstances above, a Dutch auction can be a way for agents to get more for their vendors. So it does still occur. As a buyer, be careful getting caught up in the back and forth. Do your research, know the true value of the property, and set your walk-away price. Try not to let the emotion and fear of missing out get the best of you!
Board Room Auction
The most transparent way for agents to manage acceptable offers pre auction, is to run a ‘board room auction’ prior to the original auction date either in their office or online. Again, an acceptable offer would trigger this process, then instead of giving buyers a deadline for best and final offers, they would give you a time and location for an auction before the auction. You are able to prepare yourself to bid, you can see your competition and there is no fear of paying ‘too much’ as you will have social proof of the value.
One of the benefits of buying at a board room auction is that it often catches competing buyers off guard, perhaps they haven’t finalised their due diligence and don’t feel prepared to go as hard to secure the property as if they had more time to commit to the process. As always, make sure you have done your homework, know the market and value inside out and bid confidently to secure the property.
Don’t forget, if you find yourself in a situation where you are needing to get involved in negotiations prior to auction, you can always call us to give you hand!
Until next time,
Sam Davenport