This is a very common question we field, and the answer is simple.
“It depends on the situation.”
Most buyers don’t like the thought of competing for a property in a public auction format. It’s intimidating, it’s fast, it requires emotional (and often some financial) investment in the process before being assured of a purchase, and for many, the mere thought of missing out on the house of their dreams with a crowd watching on is enough to send them into a spin.
But there are more pro’s than cons to auctions in this current market if you ask a Buyer’s Agent. It is no revelation when I suggest that Melbourne is still very much in a Buyer’s Market. Despite a general willingness from many investors, first home buyers and upgraders to leap back into the market, the tough credit conditions remain our limiting factor. Banks are taking record time to process applications and credit assessors are wading through piles of loan submissions with their (very) fine tooth combs.
Agents have adapted to this change somewhat.
- They are making more buyer calls than they were two years ago. Properties aren’t just selling themselves, nor are record bidder numbers arriving at auction.
- Quite a lot of auction campaigns are now running for more than the typical four weeks’. Agents realise that buyers need longer than a month to sort out the appropriate pre-approvals to bid.
- Many properties are listed as Private Sale campaigns, particularly those that could be less popular with bidders at auction.
We have enjoyed a higher rate of auction success over the last twelve months, and this should not come as a surprise. Auction attendance is still reasonable, but bidder numbers are limited.
We have experienced numerous situations where buyer numbers were expected to be healthy, yet when the auction call commenced and the agent has asked or bids, we’ve been the only bidder. We’ve had pass-in purchases for properties we’ve least expected to.
Agent’s campaign intel is flakey at best, and for no fault of their own.
In our current market, the pro’s of an auction far outweigh the cons in almost every case.
- We have the confidence to bid to a fair limit based on our research.
- We are seasoned bidders. We love it, we’re tactical and we can read the play.
- We are often intimidating to other buyers. In these situations, we can effectively slow down (or stop) another competing buyer merely with our confidence and tactics, (I note that it is illegal to prevent any bidder from bidding… we don’t do that. We just bid assertively).
- It’s a fair and transparent fight. We can see the other bidders. We know they are real, and we can see for ourselves what their bidding increments and limits are.
- When we win, we win by a small margin… often just another $500 or $1000 bid.
- If the property passes in, we have a 95%+ chance (based on history) of paying below the reserve.
If we decide to put in an offer prior to auction, we are highly likely to be required to meet or exceed the reserve in order to tempt the vendor to sell before the big day.
We have to determine whether we wish to do that, or if we feel the likelihood of buying better at auction is stronger.
It is important to note that there are still some situations in this market though when we will advise a client that a pre-auction offer is the right way to go. Such examples include:
- The property is extremely rare and sought-after, and our intel suggests that some cash buyers (or strong buyers) are going to be bidding at auction.
- The property is a perfect match for our client’s home-search, and the frequency of such a property coming onto the market is low. They don’t want to take the chance at auction of being pipped if the opportunity to buy it now without the competition is at a price tag that fits their budget.
- The property has a lot of buyer interest, but the auction is looming and the buyers are all still scrambling for finance. By putting in an offer prior at a realistic price, the others may not yet be in a position to compete, but otherwise could have if we’d waited until auction day.
- The Vendor has got completely nervous and is prepared to sell for a very sharp price.
There are some auctions that cannot be moved forward. These may include deceased estates, court ordered divorce settlements, and mortgagee sales.
Under all of these circumstances, it would be silly to try to enforce an offer prior. All that it will do is show your cards, annoy the agent and waste everyone’s time.
Deciding whether to pounce prior or “run to the day” is integral, and balancing that fine line of communication with the agent is crucial. Nobody wants to show their cards, but a considered conversation will need to ensue with the agent if you are asking them to change their campaign to cater for a prior offer.
If the decision to avoid the auction is stemming from nerves, buyers are best advised to find someone with nerves of steel to help.
Nerves are not a justified reason to put in an offer prior to auction.