- Being prepared is crucial, including building and pest checks prior to providing an offer.
- Getting your finances in order is also important.
- You may still be subject to the same conditions as an auction.
With the property markets going full steam ahead for the final dash of 2023, we are seeing more and more houses selling “under the hammer”, with auction campaigns in favour when the market is hot.
If you want to buy your dream home, buying at auction might be a daunting process as well as having a fear of overcapitalising and paying too much due to the hype of the auction.
But there is another way to buy the property, even if it is listed as sale by auction.
If you want to get in early and avoid the stress of the auction, it is possible to take the property off the market prior by negotiating with the selling agent and vendor an appropriate price along with attractive selling terms.
What to do when buying a property before auction:
1. Be prepared
When you buy a property prior to auction, it is usually under the same “conditions” as an auction, meaning that you will be purchasing under a 66W certificate which effectively waives any “cooling off” period you would have under regular sale conditions.
This means you are unable to back out of the sale.
Therefore, it is important you are prepared and ready to purchase the property, with all your questions answered, finances in place, and any due diligence completed.
2. Get your finances in order
Because you will be forfeiting any cooling off period allowing for finance approval or building and pest reviews, you need to ensure your finance is ready.
Speak to your mortgage broker to ensure you have finance pre-approval and that the amount you are purchasing the property for is an amount that you are able to afford.
Make sure that the deposit amount that the vendor will accept has been pre-approved if it is not the standard 10%.
3. Do your due diligence
Before placing a pre-auction offer on the property, ensure that you have completed any research and due diligence on the property and you are happy with your findings and the condition of the property.
You should have completed a building and pest inspection on the property, prior to providing an offer to the vendor.
You will be unable to do this after you have exchanged contracts as you will have waived any cooling off periods under a 66W.
How do you place an offer on a property prior to auction?
1. Know the market
There is no point placing a pre-auction offer on a property if you don’t understand what the property is worth. Do your market research on recently sold properties in the area that are of comparable quality, style, and size to understand what this property might sell for.
Do not look at properties that have sold more than 3 months ago as the market changes quickly and sales that were 3 months ago or more are no longer accurate and comparable.
2. Favourable contract terms
When placing an offer on a property, it is not only about the price. Understanding the seller’s motivations and what they are wanting from a sale is important to get your pre-auction offer over the line.
If you are able to be flexible on contract terms such as settlement periods and can align with what the seller might be wanting for a settlement period this will make your offer look more attractive and more likely to be accepted pre-auction.
3. Don’t place low ball offers
When placing a pre-auction offer, don’t try to put a low ball offer to the vendor.
Low ball offers will make the vendor think you are not serious about buying their property, and it will only make you look like you are inexperienced and don’t understand the market.
You will not be getting a bargain by buying a property pre-auction and you would likely need to give a really attractive offer beforehand otherwise the vendor will just go ahead with the auction campaign.
What offer should I place pre-auction to secure the property?
If you have found your dream home and want to secure this before the auction, you will need to put forward an offer that would be attractive to the vendors in order for them to accept and cancel the remainder of the auction campaign.
By doing your market research, you should offer an amount that you would expect the property to sell for at auction, or even a bit more to secure it.
If this property really is your dream home and you want to ensure you secure it, you may need to pay more than what you think it will sell at auction to obtain it, and you need to be willing to go to your limit. Over the long term, the additional repayments on your mortgage might not be significant when split it over the term of your mortgage.