What do I do if I have a pre-auction offer?
Should you accept a pre-auction offer or wait for the auction campaign to run its course?
One sure sign of a hopping property market is seeing sold signs and messages on Trade Me Property listings saying: “Auction brought forward.”
As a seller, there’s nothing more gratifying than a pre-auction offer, and for buyers the blood really gets pumping when they see that the house they like is going to auction in the first week of coming to the market. They’re immediately on the backfoot having to get the inspections done in time and their finance sorted in order to be able to give an unconditional offer.
The role of the selling agent if a pre-auction offer comes in
Laith Alewi, Ray White Royal Oak agent estimates around 80% of pre-auction offers are low. But when an offer comes in and is viewed as good enough to push an auction forward, the agents on the selling team hit the phones to buyers.
“We want everyone rushing and getting ready for auction so they’re ready to bid,” says Mr Alewi.
Bayleys Remuera agent, Amanda Maloney, is literally breathless as she speaks to Trade Me Property because she’s working on two auctions which have been brought forward in one week.
She explains why so many auction dates are being brought forward at the moment. “A lot of people are worried about what’s happening with the current political landscape. People just want certainty,” she says.
For confident property buyers, it’s a strategy to say, “I’ve got my ducks in a row,” she adds.
It sends the message, “I’m organised and you’re not,” says Ms Maloney. Suddenly everyone else has got to do their due diligence in a three day window.
The selling agents will help as much as they can. “When we get a pre-auction offer, we then spend the next three days not sleeping, opening the door as many times as we can, and reaching out to everyone,” says the Bayleys agent. Communication is vital.
Pre-auction offers are so tempting but think long and hard
For sellers, being told you have a good pre-auction offer can be very alluring especially if you’ve bought already. It means the house sale gets done and dusted earlier, you can save money on staging, bring the cats back from the cattery and so on.
In some cases, a very aggressive offer will lead you to take the home off the market completely.
Ray White Carpenter Realty general manager Lauren Davies, says her office saw a very good pre-auction offer on a property recently. It was a significant amount higher than they were getting from the buyer feedback, and they’d nearly finished the three weeks marketing, so it was a “no-brainer.” Plus the vendor had already purchased.
“But we try not to bring auctions forward because we genuinely believe the vendor gets a better result when there’s a full auction,” she adds.
What the buyer who puts in a pre-auction offer is trying to do is disrupt or interrupt the auction, she says. “When a buyer puts in a pre-auction bid, it’s their way of putting themselves in control,” she adds. She would rather see the vendor in control.
When bringing the auction forward would have been a mistake
The Ray White manager cites an experience recently where a relatively humble Birkenhead property with development potential was getting some strong pre-auction interest in the low $1.1 million. It was a three bedroom home, an estate sale, with a potentially subdivisible section of 1163 sq m.
But the vendor hung in until the scheduled auction and they were rewarded with 27 bidders, 10 of them active and the property ended up selling for $2.29 million, thanks to a bidding war between two developers.
This modest three-bedroom bungalow on 1163 square metres in Birkenhead sold at auction for $2.29 million, after attracting 100 bids from 10 active buyers.
One of the developers only expressed interest late in week two of the three week marketing period so they might not have had a chance to see the property if the auction had been brought forward, says Ms Davies.
“There was such a large amount of interest and a phenomenal outcome, how can we be confident that we’d have captured all the interest in week one?” asks Ms Davies. The other eight bidders who made up the strong bidding also played their part in giving the vendor such an extraordinary result, she adds.
If the auction is brought forward in the first week, the buyer pool is smaller. There are new people entering the market every day so three weeks is a good period for an auction, says Ms Davies
It comes down to being the vendor’s choice
After just one week in the market how do you know that you’re getting the best price? After three weeks you’ve got more of an idea, says Ray White national auctioneer, John Bowring, who has run six auctions recently which were brought forward.
“It’s got to be the vendor’s choice,” he says. It comes down to their personal circumstances and what they instruct the agency. In order to be tempted, it’s got to be a great price, he adds.
But what is a great price? “Because last week’s market is last week’s, this week is this week’s, that’s an incredibly hard thing to pinpoint,” he says.
Sometimes buyers giving pre-auction offers will give vendors ultimatums. “I’m looking at something else, so if you don’t respond now, you’ll miss out,” for instance. But vendors have to weigh up their options.
“I’m still a big believer that if you make it to auction day, it’s better than bringing it forward,” he says.
A pre-auction offer one less thing to worry about or under-selling
A lot of people forget selling a home is tied up in emotion, says Aaron Davis, Harcourts national auction manager.
Of course the money’s important, but it’s also about what does the move mean, says Mr Davis.
The most important commodity is value for time, he says.
“A pre-auction offer means I wake up tomorrow with one less thing to worry about,” he explains.
But the offer has to be suitably tempting. Mr Davis says around 50% of pre auction offers are turned down.
“It’s a game of chess,” he says. He’s heard of stories where the pre-auction offer is turned down, then two weeks later at the auction the final offer comes in below and the vendor says, “I want that same pre-auction offer,” and they don’t get it. (If an auction is brought forward due to a good pre-auction offer, the auctioneer starts the bidding at the pre-auction offer.)
If it were his house, Mr Davis thinks he’s more than likely to proceed with the full auction campaign but if there were an overseas buyer prepared to pay $500,000 more, it might be a different story.
“The key to the auction process is you can sell before, on, or after auction,” he says.
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