If you’re trying to buy a home, the competition among buyers has never been more fierce as surging house prices force buyers to battle it out at auction.
It’s getting increasingly hard for buyers to compete at auctions in a seller’s market with clearance rates soaring above 80% and properties being sold for well above the vendor bid.
One tactic some buyers are using is to make an offer before a property goes to auction. The thinking behind this is that if you make an offer enticing enough, you could convince the vendor to sell before auction, cutting out the rest of the competition. Regardless of how strong the market is, there will always be sellers who are scared about going to auction, or who need a quick sale - this is where a pre-auction offer can work in your favour.
Here’s what to keep in mind if you’re thinking about making an offer on a property before it goes to auction.
Get a property report
The key to making a decent offer before it goes to auction is to have a good understanding of the market and the property you’re eyeing up. Property reports contain a wealth of information about a specific property including its estimated value, previous sales history, comparable sales and details about the suburb.
A property report can put you in a stronger position if you’re making a pre-auction offer because it can tell you if the sellers price guide lines up with what the data for that suburb is, as well as comparable sales in the area, which gives you a better idea of what to offer.
Buyers need to consider very recent comparable sales as well as taking into account what the vendor is asking. For example, there’s no point in offering $1.2 million if the vendor is seeking offers above $1.4 million - they’ll just take the property to auction where they know they’ll be able to drum up competition and get a higher price.
Get free property report
Understand recent sales
If you’ve been out of the game for a while, you’ll probably notice that property prices have rapidly risen above what they were even just 12 months ago.
A property report can help you understand recent sales in the area, but you should also consider other ways of researching the market, like talking to agents, attending auctions, and keeping up to date with research data on websites like CoreLogic, Domain and realestate.com.au, as well as closely following property market news.
It’s always a good idea to attend a few auctions anyway even if you’re planning on making a pre-auction offer so you have a better understanding of what prices are doing. If you can become a good judge of the market value of properties in the area, you can avoid overpaying at auction.
Pre-arrange finance and show them you’re serious
In the current market, pre-approvals are taking up to two months to be processed instead of the usual two-three weeks because of a surge in demand. To counter this, make sure you submit your application for pre-approval as early as you can so you can go into negotiations knowing exactly how much you have to spend. This will also prevent you from overbidding, and will put you in a better position if the buyer accepts your offer because you can settle quickly.
Speaking of settling quickly, if you want to show the vendor you’re serious it can be a good idea to make an unconditional offer if you’re in a position to do so.