Why do agents resist pre-auction offers?

Pre-auction offers are a common topic. Many agents are asked by purchasers whether their vendors would consider selling a property prior to auction.

Unsurprisingly, the vendor’s (and agent’s) willingness to accept offers prior varies with the market sentiment. When the property market is languishing or falling, offers prior to auction are welcomed, and in fact encouraged.

But in a strong or improving market, they are almost-always discouraged, unless the vendor’s situation requires a shorter settlement period or specific set of terms, or unless the buyer’s offer is so ridiculously strong that the agent is certain it would eclipse any rational bid on auction day.

The latter is not an approach we recommend buyers ever employ.

When an offer prior to auction is not preferred, agents will resist the offer via several different ways. Some will hold back providing contracts to buyers until closer to auction day. Others may only issue draft contracts, or unsigned contracts. It is important to note that a Vendor Statement requires the signature of the vendor before offers can be legally documented.

Most agents, however will inform buyers that it is the vendor’s wish to run the property to auction.

The are some reasons why this could be the case.

Firstly, the campaign could be going strongly. If agents are confident that they have multiple genuine buyers interested in a property, they will have a high degree of confidence that competitive bidding on auction day will deliver a pleasing result. These days, agents have a lot of good information about many of their buyers thanks to their integrated CRMs. The will know which buyers have participated in any of their company’s private sales processes or auctions previously, and for some they’ll be aware of the buyer’s recent historical bids or offers. Not that this is a guarantee of a future budget, (particularly in this rising interest rate environment), but it’s a reasonable indicator.

Secondly, the agent may not believe that the buyer who is entertaining the idea of making an offer is actually ‘talking’ at the right price level. Unfortunately auction quoting is not necessarily a reliable indication of likely selling price, and many buyers fall prey to this. If an agent is not confident that the buyer’s perception of value is aligned with the vendor’s expectations, they will push to go to auction.

The third reason relates to vendor preferences. Some vendors are determined to sell via public auction, often because there are several stakeholders involved in the sale, (for example, a late parent’s house) and they don’t want the responsibility of making any important decisions that could be critiqued or regretted by other family members.

They adopt the attitude that an auction allows a property to find it’s market price.

Other vendors have seen or experienced successful auctions and are keen to hold out for the big day.

Another reason an agent may resist a sale prior to auction relates to marketing, branding and meeting new prospective vendors. Auction campaigns aren’t just for agents to meet prospective buyers for the subject property. They represent a chance for an agent to;

• Get some local exposure with their name and agency logo on the board
• Share the listing on various media channels; from search engines to social media to printed media
• Meet some buyers who may not find the subject property suitable, but may find other suitable listings that the agency have
• Meet some prospective sellers. After all, many prospective buyers have a property to sell if/when they buy
• Showcase their ability at auction to prospective sellers
• Grow their book of contacts through the open for inspection phase

One interesting reason why an agent may resist a prior offer could come down to the buyer. If that buyer has previously cooled off or behaved badly, an agent will be reluctant to risk tarnishing their campaign. Every vendor’s dread is a failed auction campaign, and experiencing a sale on their property, only to have the buyer cool off is not common, but it happens.

The collateral damage is awful and the agent shoulders the vendor’s upset when this happens. An auction sale eliminates the risk of a buyer cooling off, and agents will exercise this if they have concerns about a buyer’s past conduct.

Lastly, there is one key reason for an agent resisting a pre-auction offer, and buyers owe it to themselves to make sure they have explored this before making any offers. Some properties legally have to run to auction. Family court orders, mortgagee auctions, among a couple are reasons for this.

If the property must be sold by public auction due to legal reasons, there is no point making offers. All it does is shows your cards.

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