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Pros and Cons of Making a Pre-auction Offer

Pros and Cons of Making a Pre-auction Offer

Buying a house through an auction can be a stressful experience. For this reason, making a pre-auction offer can be a good option to avoid the stress of competing with other buyers.

This strategy is best used when you’ve already done your homework so you have an estimated value for the property. You can do this by checking out nearby properties that were recently sold.

If you’re unsure if this strategy will work to your advantage, we have compiled the pros and cons which can help you decide if you should make a pre-auction offer on a property.

Pros of making a pre-auction offer

  1. It lets you stick to your budget: When you’re buying at an auction, it’s more likely that you'll go over budget because there is the pressure of competing with other buyers. Making a pre-auction offer is much less stressful since you are away from the hectic environment you see on auction day.
  2. You can prepare better: You’ll have more time to prepare the necessary things for your home loan, like getting a pre-approval and having the property valued which you may not be able to do in time for an auction. Generally, a five-day cooling off period is given to you to give you time to organise your finances.
  3. You can get the property a lot sooner: You can get into the settlement date quicker plus the sale contract is more flexible if your pre-auction offer is accepted by the vendor. 

Cons of making a pre-auction offer

  1. You might pay more: You might have been able to buy the house at a lower price at auction.
  2. The seller may use your offer as the reserve price: If your pre-auction offer is rejected, the seller can legally use your offer and set it as their reserve price on auction day. This can make the bidding war harder for you.
  3. No cooling-off period: There won’t be any cooling-off period if you made your successful pre-auction offer within three days of the auction, and you can’t change nor withdraw your offer.

A pre-auction offer when buying a house can be best used to your advantage when you know that the demand for the property is low. This usually happens when there are similar properties up for sale and sellers are very keen to sell their property fast.

Make sure that you do your research about market conditions and get a pre-approval on your home loan before you make a pre-auction offer. You can get started now and see if you qualify for a home loan with us.

 
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