1. Your offer needs to be cash and unconditional
As with any bid at auction, a pre-auction offer needs to be fully unconditional. The lead-in period to auction is there to allow for all interested parties to carry out their due diligence investigations so as to be in a position to bid unconditionally on the day. You may submit a conditional offer to show your intent, but this is unlikely to be accepted prior to the auction.
2. You’re unlikely to shut down the auction altogether
If the seller is inclined to accept your pre-auction offer, the most likely course of action is to bring forward the auction to within 2 working days of notice being given to you that the offer is acceptable. This is to allow other prospective purchasers an opportunity to throw their hat into the ring, especially if they have spent time and money in the course of their pre-auction enquiries. The price stated in your pre-auction offer effectively becomes the opening bid. In some cases no further bidding occurs and the hammer goes down. In others, the opening bid can be met with fierce competition and a selling price considerably higher than the initial offer.
3. You can beat other prospective bidders to the punch
An advantage to submitting a pre-auction offer is that you’re beating other prospective bidders to the punch. If you’re in a position where you have all your ducks in a row and can purchase the property on a cash unconditional basis, you’re likely to cut out those who haven’t been so efficient in their enquiries. Many buyers see the pre-auction offer as an effective way to avoid an out-of-control bidding war.
4. You’re going to have to make it worthwhile for the sellers
Continuing on from #3, by submitting a pre-auction offer, you’re asking the sellers to cut short the property’s exposure to the marketplace. Thus you’re going to have to make it worthwhile for the sellers to shorten the timeframe in which potential purchasers may hop on board the auction train. For example, a seller is unlikely to take a hit price-wise when their property has only been on the market for a week. Our advice is to go in strong with a little fighting money in the kitty should it be needed.
5. Just because your pre-auction offer hasn’t been accepted doesn’t necessarily mean the property won’t sell at the price you offered
We’ve seen instances where sellers have been presented pre-auction offers at levels at which they’d sell if there was nothing better on auction day. The only reason they weren’t accepted is because the sellers chose to carry on with the marketing campaign as planned in the hope of amassing as many potential bidders as possible. In other words, they’ve opted for the 2 birds in the bush as opposed to the one in the hand. Ultimately it is the seller’s decision and they’ll weigh up the pros and cons accordingly.
As with all property transactions, auctions can be circumstance-specific and there are many variables at play. Some sellers will take the money and run, others will be more willing to see what comes together on the day. Nevertheless, pre-auction offers can be an effective tool in getting a head start on your competition. Any questions, be sure to ask your local real estate professional – we’re only too happy to assist!