It can be difficult to beat the competition at auction and with auction clearance rates running at around 80% in most capital cities, it’s clear that the majority of bidders miss out on the property they’ve chosen when the auction gavel comes down. So, how can you avoid going to auction? What can you do to secure a property when you don’t have deep enough pockets to outbid the competition on the day?

A good strategy is to try and secure the property by making an offer prior to auction day. Whilst many vendors will prefer to allow the market to dictate the best price for their property, many are open to offers before auction day.  Here are a few tips to help you make an offer that’s accepted and avoid the hassle and inflated prices that auctions can create.

1. Do your homework

Before you make an offer, you need to decide on an offer price. Start by researching recent sale prices of comparable properties in the area. This will give you a starting point for setting a fair offer price on the property you wish to purchase and give you a good idea of the vendor’s price expectations. It will also tell you if the property is in your budget and worth more of your time.

Next, research the property itself by obtaining building and pest inspection reports. If there are any problems with the property you can cite these as reasons why you are offering a bit less.

Another factor that you may need to research is demand for properties of this type in this particular area. Demand sets the price of a property and it may be high for a variety of reasons – schools may be particularly good in the area, the area may be about to undergo attractive infrastructure development projects like better public transport links or a new shopping center and so on. If demand for the property is likely to be high, you may need to make a higher offer to succeed.

If your research does not help you come up with a reliable offer amount, don’t be afraid to ask for professional help. A valuations expert can help you assess what the property is worth in today’s market. If you need a professional valuation, ask us for a referral and we’ll be happy to help.

2. Get to know the real estate agent

Negotiation is a two way street – so it is important to have a good working relationship with the real estate agent who is in charge of negotiations on behalf of the vendor. Make sure they see you as a serious buyer and they will be more respectful of your requirements and negotiations.

Remember that the real estate agent has the knowledge that can help you work out how best to play your hand. Here are some questions you can ask to help you formulate your offer strategy.

• Why is the vendor selling?
• What price is the vendor expecting?
• What are the vendor’s requirements regarding settlement? Do they want a long or short settlement, do they need to extend their stay in the property?
• Is this an investment property or the vendor’s home?
• Have they already bought elsewhere?

The answers to these questions will help you decide how to proceed – or even if you will proceed to make an offer at all.

3. Formulate an offer strategy

Once you are fully informed, you will need to think carefully about how to present your offer. By now, you should have an upper price limit firmly fixed in your mind based on your estimate of the property’s value and your budget. No matter what happens during the negotiations, never go above your upper price limit. It’s easy to be influenced by your emotions and the clever negotiating tactics of the real estate agent, so this is a hard and fast rule you should always stick to.

If you are hunting for a bargain, it may be tempting to make a ridiculously low offer for the property. However, this could be a mistake because the real estate agent could dismiss you as a serious buyer. If you have a legitimate reason for making a low offer, be sure to tell the real estate agent why you are offering a reduced price so that they continue to take you seriously.

If you really want to obtain the property, you will need to make a genuine offer.  A good idea is to offer a bit below your estimate of the value of the property. This will mean your offer is taken seriously and give you some room to negotiate upwards if the vendor does not accept your first offer.

Do whatever you can to make your offer more attractive to the vendor. To do this you could offer to meet the same terms they would receive at auction, offer a larger deposit, meet their settlement terms or offer to extend their stay in the property after sale.

4. Be ready for the negotiation process

The negotiation process will begin once you submit your offer in writing to the real estate agent. Verbal offers are not acceptable – your offer must be in writing and signed by you before they can present it to the vendor.

Once this is done, the vendor will either accept your offer, reject it completely or come back with a counter offer. If they reject your initial offer or come back with a counter offer, then you can raise your offer price – or walk away. The choice is yours.

Sometimes the real estate agent will tell you they have already had a better offer and use it to get you to raise your offer price. Do not allow this commonly used tactic to influence you to offer above the limit you have set for the property. Make sure your subsequent offers are reasonable and fair.

Remember, auctions cost money so it can often be in the vendor’s best interests to avoid going to auction too. Once the vendor accepts your offer, you will be asked to sign a contract agreeing to the purchase and the negotiations are done!

5. Be confident

Negotiating can be a nerve-wracking experience, so it is important that you are confident about the offer you make. Doing your homework will certainly put you in a position to negotiate confidently – or walk away if the situation just isn’t going to beneficial to you.

Be sure of your budget and never exceed it. Putting yourself in a difficult financial situation simply to secure a particular property is not worth the ongoing financial pain. To help yourself negotiate from a confident place, talk to us about your budget and we’ll help you to get pre-approval on your financing to give you more negotiating power. 

Remember, we’re here to assist you in any way we can. Come in and talk to us about your plans and we’ll help you to secure your financing ahead of time. It’s a great time to be in the market for a property, so call us today.