Sick of auctions? Have you considered making an offer on a property prior to the auction? Making an offer on a property may give you the result that you are looking for without the stress that an auction can cause. (See Psychology of Auction)There are crucial factors to consider to increase the likelihood of your offer being accepted. Let’s explore these essential considerations togethers
1. Inspect the property, then ask for a contract of sale and declare your interest
If the property that you inspect interests you, ensure you get a contract of sale. That is a subtle way to let the real estate agent know that there is some interest. It doesn’t cost you any money but it will ensure that if there is any update regarding the sale of the property. The real estate agent will be sure to contact you.
2. Let the real estate agent know that you would like to put forward an offer
Surprises, especially in high-stakes situations, are unwelcome. Informing the real estate agent of your intent to submit an offer typically prompts them to notify other interested parties, preparing them for potential competition. This transparency compels other parties to either engage in the process or decide to step away from the property. In some cases, real estate agents may indicate that the property will proceed to auction despite offers, often due to the owners’ instructions. It’s crucial to communicate your intended steps to the agent, such as proposing contract changes and arranging for a pest, building, and/or strata report review, signaling your serious interest in making an offer.
3. Think about the price
The price you’re willing to pay for a property often differs from what the vendor is willing to accept. It’s essential to assess the significance of the property to you and also consider what others might be willing to pay for a similar property. Review recent comparable sales to help determine an appropriate valuation. (Keep an eye out for an article on how to appraise a property.)
Ultimately, when making an offer, it’s crucial to create an enticing proposal that could persuade the vendor to withdraw from the auction campaign. This offer should be influenced by the number of potential buyers observed during viewings or inspections, as well as the number of existing contract holders. Your instincts here will tell you to avoid submitting your maximum offer to the real estate agent and plan for contingencies if the property continues the auction. This can be counterintuitive as if the vendor rejects your maximum offer it may mean that the property was never within your budget in the first place and saves you from wasting your time at auction. A lower offer might not be accepted but might be used to get other buyers to make a a best and final offer, most likely higher than your ‘lowball’ offer
Imagine discovering that the property sold for more than your offer but still within your budget. The disappointment would be far less than if the property went beyond your budget
4. Make an offer where the other consideration is the price
Another aspect to consider in the offer pertains to the terms under which it is presented. These terms may encompass a variety of conditions that we cannot thoroughly address here. We’ll discuss them broadly.
Offers that are “Subject to”
This is akin to a feeble handshake. It doesn’t spark enthusiasm in the vendor or the real estate agent. An offer contingent upon finance approval, contract review, or strata report review signals that you’re willing to spend on due diligence only if the price suits you. It’s clear that an offer made this way can just as easily be withdrawn. Most real estate agents would advise against accepting such offers.
The most effective way to demonstrate serious interest in purchasing the property to both the real estate agent and the vendor is by completing your due diligence beforehand and submitting an offer not subject to any third-party review. This approach will also compel other potential buyers to make a decision about participating in the property purchase or passing on it.
Offers with settlement dates, particularly special conditions, and additional inclusions.
It’s common for both buyers and sellers to have existing commitments tied to legal and financial obligations. Some of these obligations are inflexible or carry too much risk to alter. Therefore, it’s advisable to streamline your conditions to only those that are genuinely necessary.
For instance, picture two offers at identical prices, but one comes with an extensive list of specific conditions and a delayed settlement. It’s highly unlikely that the vendor would accept such an offer.
Cooling Off Period
When buying a property at an auction, there’s no cooling-off period. Opting to waive this cooling-off period can be a powerful advantage. I’ve witnessed instances where sellers preferred a lower offer without a cooling-off period over a higher one with a 5-day cooling-off period. Including an S66w certificate with your contract to waive the cooling-off period means that the offer’s primary consideration would then be the price. If the price meets an acceptable level, there’s a high likelihood that the offer will be accepted.
Certain real estate agents might be inclined to ‘shop your offer around,’ which can be detrimental to both the buyer and the seller. However, if you’ve diligently followed the necessary steps and notably informed the real estate agent of your plan to submit an offer, setting a specific timeframe for the offer’s acceptance can prompt other interested parties to make a decision regarding the property. This window time approach makes it challenging for the real estate agent to explore or solicit offers from other potential buyers, especially if they might have disclosed your offer’s price (which they shouldn’t have), as they still have to submit the offer based on your time window.
A good rule of thumb would be to set a deadline by the close of business (COB) the following day if the offer is submitted in the afternoon or by COB the same day if submitted in the morning. If the real estate agent has appropriately communicated your intentions to other parties during the campaign, there should be no delay in this process.
Making an offer on a property before an auction offers a less stressful alternative. This guide highlights key steps for a successful offer.
Firstly, obtaining a contract of sale subtly signals interest to the agent, ensuring updates about the property. Notifying the agent about the intent to offer prompts preparation among other buyers.
Price considerations are crucial; a compelling offer might persuade the vendor to withdraw from the auction. However, avoid revealing the maximum offer initially and plan for contingencies if the property proceeds to auction.
Offer terms matter; submitting an offer without multiple contingencies signals genuine interest. Waiving the cooling-off period can shift focus to the offer’s price, increasing acceptance chances.
Lastly, setting a specific timeframe for offer acceptance limits the chance for agents to explore other offers, compelling action from other buyers within your timeline.
In conclusion, understanding these critical factors and navigating the offer process strategically can enhance prospects of securing a property before auction, reducing the stress of bidding uncertainty.