Can you really buy before auction?

via therealestateconversation.com.au

As an auctioneer, clearly, I’d prefer that every auction made it to the big day. Sometimes, however, vendors opt to sell beforehand because of their unique financial or personal circumstances.

Can you really buy beforehand? 

There has always been some skepticism amongst buyers whether properties are really for sale prior to auction or whether it’s just a price fishing expedition.

In my experience, vendors who are open to selling before auction, generally are committed to the idea if an appropriate offer is made on their property. I generally find there are two types of buyers who make offers before auction.

The first is the buyer who is dipping their toe in the water, so to speak, and hoping to learn the seller’s price expectation. The other type of buyer is one who genuinely doesn’t want to bid at auction perhaps because they’ve missed out on a few properties already and want to learn sooner rather than later whether they’re in with a shot.

Selling before auction happens more often in specific market conditions, of course, but also at particular times of the year like before Christmas.

Some sellers just don’t want to have their properties still on the market over the holidays and for them certainty is more important than going to auction.

So, for those sellers, they are chasing peace of mind more than the best price. Selling before auction can happen in rising and falling markets in my experience. When a market starts to shift to the positive, more buyers tend to make solid offers before auction because they don’t want to run the risk of missing out on the day.

In southeast Queensland at present there are more sales before auction than usual for this time of year, because the market appears to be strengthening. In fact, I don’t think it’s increased this sharply for a number of years. If we use history as a teacher, it may be indicating that the southeast Queensland market is shifting into another gear as we head into 2018. Conversely, when a market starts to cool off, sellers think that they don’t have the same security blanket so they opt to accept offers beforehand.

What are the pros and cons?

Buyers must understand that buying before auction is an opportunity so you really must make your biggest and best offer if you’re serious about securing the property. You can’t try and buy prior by putting your toe in pool – you can only buy prior to auction by diving into the pool.

Don’t make an offer with the expectation that the seller or the agent is going to come back and tell you exactly what their lowest selling price is going to be, because that just doesn’t happen.

They’ll either say you’re close or you’re not even in the same ball park. Also, if a seller is prepared to accept offers prior, it’s unlikely that you will be the only buyer in the running so you must put your best foot forward.

Likewise, if you’re buying a property prior, you almost have to compensate the seller for the risk of them not taking the property to market on auction day. That means that quite often you have to pay a premium because you’re compensating the seller for not going through the campaign that they’ve been advertising for three or four weeks.

For vendors, selling before auction has to involve what I call a #noregretsprice. So it’s the figure that they’re not going to look in the rear view mirror and regret that they didn’t go to auction.

Going to auction could produce a spectacular result on the day if there are a number of competing bidders, backed up by a thorough marketing campaign. The reality is that sellers won’t know what the result will be until auction day – and for some peace of mind is more important, which is fine.

At the end of the day, buying or selling before auction can be a sound strategy as long as the vendor is prepared to accept that a higher price may have been achieved on the day and the buyer understands that they’re unlikely to get a bargain.