We’ve all seen those listings that promise that a property will be sold on auction day or before, haven’t we?
The question is: will it really?
There are many tools in a selling agent’s kit-bag and one of the most successful is to create competition for a property.
More competition means a higher price after all.
So, if an auction is the best strategy to create competition amongst buyers, why would a vendor sell the property beforehand?
Here’s the thing: as well as creating competition, an auction also sets a deadline for the property to be sold.
On auction day, the vendor can sell the property to the highest bidder if they so choose.
With this in mind, auctions are often used by sellers who want to offload their property quickly, without giving the impression that they need a speedy sale.
Likewise, if a quick sale is one of their main motivations, vendors might be open to pre-auction offers as well.
The secret is to work out whether they’re truly open to selling before auction day – or perhaps they’re merely fishing for market feedback on price.
Of course, that’s when an expert can help by asking the right questions of the agent.
Tips to negotiating a pre-auction purchase
Let’s say there’s a vendor who is open to pre-auction offers, how do you make sure yours is the winning one?
And how do you ensure you’re not paying over the odds?
In summary, here are my top five top tips for negotiating your way into a pre-auction purchase:
1. Do your homework
It might be considered “flying blind” to make a competitive offer when trying to secure a property prior to auction, but that shouldn’t mean you have no idea about the price you’re prepared to pay.
The best weapon when it comes to negotiation in real estate is knowledge.
Know the market and know the value of the property in question.
Armed with that power, if it’s the right property – and especially if you’re looking at buying your home – don’t be scared to put your best offer first.
But you should also be prepared to walk away if the price is too high.
2. Be prepared to lose
While no one likes to consider themselves the “loser” in any sort of negotiation, it’s far better to walk away and live to fight another day than over-commit to a property you’ve become emotionally blinded by.
This comes back to tip number one – if you know the true value of a property and set a limit on what you’re prepared to pay, make sure you stick to your plan.
After all, there are plenty more “fish in the sea” and by losing gracefully, you just might find you’re a bigger winner the next time around.
3. Don’t be forced into a “Dutch Auction”
A “Dutch Auction” is essentially where two or more potential purchasers end up making “blind bids” prior to the property going to auction.
Having no idea how much the other party is offering, the selling agent may tell you that they’ve put in a higher
amount and ask if you’re prepared to increase your offer.
This can go back and forth a number of times, depending on just how far each party is prepared to go.
Dutch Auctions often push the price of a property beyond reason as emotions get the better of unwitting participants.
Again, the key is to walk away when you reach the limit you’ve set yourself.
4. Time is your greatest weapon
Use time to your advantage by making your offer at the last possible minute.
Never be too hasty or impatient as this will work against you and could be the reason you lose out to another purchaser.
During any negotiations, waiting is a great weapon in your arsenal as it will make the other party sweat a little and give you the upper hand.
5. Play your cards close to your chest
Real estate agents are very skilled at prying information out of potential buyers, including the price they’re prepared to pay for a property.
After all – it is their job!
Sometimes you can end up revealing things to them that you never intended to and that might be detrimental to your negotiating power.
By keeping your cards close to your chest and revealing very little about how much you might pay, you maintain an advantage.
It’s vital that an agent cannot use your information to sway another potential buyer to increase their offer and outbid you.
So let’s clarify…
Properties that are being sold by auction may be open to offers before the day.
The key to success is understanding how serious the vendor is about selling before auction day.
Now the point here is to gather all the necessary market intel before you submit an offer.
And then don’t get emotional.
Like I’ve said many times before: successful property investment is about buying with your head and not your heart.