Pros and cons of making a pre-auction offer

A pre-auction offer is when buyers make an offer before the property goes to auction. This has become a common tactic for home buyers to try and get ahead of the competition.  

There are advantages and disadvantages to this buying strategy. Before deciding to send in a pre-auction offer, it’s best to weigh the pros and cons first. 

How does making a pre-auction offer work? 

Making a pre-auction offer is similar to making an offer on a private sale property. You submit a written offer to the agent or seller listing your offer price and conditions. Always double-check with the agent to make sure the owner is accepting offers before the auction. If the owner is accepting offers, you may be able to submit a written offer either a few weeks or a few days prior.  

What are the benefits of making a pre-auction offer? 

There are a few notable benefits of making an offer prior to the auction. Although it's highly dependent on the individual situation, you may want to have a think about whether the following pros are going to be applicable to you. 

It could be less stressful 

If high-pressure situations make you nervous, you probably won't like the auction process. Bidding at auction might seem like a very intense and nerve-wracking situation to openly compete with the other buyers. To avoid this altogether, a pre-auction offer can come in handy. 

You could beat out the competition 

Other interested parties might be waiting for the auction date to submit their official offers. If you can submit an offer too good to refuse, the owner might not proceed with the auction. 

You can negotiate the terms of the contract 

Typically, if you buy a property at auction, the contract you sign will be unconditional. This means that there's no cooling-off period, it can't be subject to finance, building and pest, or any other special conditions. 

Submitting an offer prior to auction means that you might be able to negotiate on the terms of the contract, meaning you could have a conditional contract, which could provide you with an added layer of flexibility. 

What are the cons of making a pre-auction offer? 

Of course, there are also drawbacks to going in with an offer prior to auction. There are drawbacks to going in hot early, rather than sitting back and strategically using the auction situation to your advantage. 

Your offer might be too high 

Without the auctioneer guiding the bidding and knowing what other buyers are willing to pay for the property, you may end up overpaying. This is why doing your research and understanding the local real estate market is important. 

The property might still go to auction 

If you're scared of laying all your cards on the table, submitting a pre-auction offer might be doing just that. If the owner doesn't accept your offer, this might influence their set ‘reserve' price and fuel them to go for an even bigger result on auction day. 

Limited bargaining power 

Despite having more room to negotiate the terms of the contract, submitting a pre-auction offer might reduce your wiggle room on the price. This is because you're essentially showing how interested you are in the property, which might leave you with little room to budge on the offer. 

Tips when making an offer prior to an auction 

If you decide to go through with a pre-auction offer, have a good pre-auction offer strategy. These tips below can help you make an effective offer: 

Do your research 

Research similar properties that were sold around the area to get a ballpark idea of what the property might be worth. Understanding the local real estate market trends will be very useful as you’ll have a reference on how much to offer.

Making an offer that’s significantly below market value could affect your chances of getting the property. Meanwhile, putting down an offer that’s way above the market value could negatively impact your finances. 

Free property reports contain a wealth of information about a specific property, including its estimated value, previous sale history, comparable sales and details about the suburb. Download a free property report online . 

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 seller's price guidelines match 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. 

It’s worthwhile for potential buyers to consider very recent comparable sales and the vendor's reserve price. For example, offering $1.2 million may be unlikely to succeed if the vendor is seeking offers above $1.4 million. 

Talk to the agent 

If you're not sure whether or not to submit a pre-auction offer, have a chat with the real estate agent. While they might not be able to advise you on the price, they can often give you an idea of how many people are interested and whether or not putting in an offer is worth it. 

See how much specific information you can get about the property itself, too. Ask the agent if there is a contract of sale or if there are any building and pest inspections available.  

They should know their vendors, the property, and the potential parties that are interested. If anything, it can give you an idea of what your chances are in submitting an offer, or whether it might be worth waiting for auction day . 

Be ready to go 

Time is a huge factor when it comes to making an early offer to buy a property. It would be helpful for you to know the next steps of the home buying process if your offer is accepted.

Understanding what happens during contract signing, arranging your deposit, getting your finances sorted, and other logitical things you may need sorted before buying your new home can help streamline the process.

Pre-arrange finance to show them you’re serious 

Having your financing sorted when you make that offer shows sellers that you’re serious about the property and you can settle quickly . Having a pre-approved home loan can also help guide your bidding strategy, as you’ll know how much you can borrow. 

If you want to learn more about your home loan options , get in touch with loans.com.au ! Speak with our friendly lending specialists or apply online today to get started. 

Disclaimer: The information provided in this article is intended to be general in nature and does not constitute financial or legal advice. Please consider seeking your own professional advice tailored to your individual circumstances before making any financial or legal decisions.