Three (3) steps for successful pre-auction negotiations are…
You’ve just seen a property which you are extremely interested in and want to buy it because it ticks all the boxes (suits most of your requirements). However, you do have one very major issue worrying you, that is you’re not so keen or confident in buying this property at auction due to the stress, anxiety and confusion that you know will cause you. So what do you do? How do you know that you won’t end up overpaying at auction due to buyer competition.
So where do I start? So what do I do and how do I do it? And what’s the first thing I should be doing? Ok, firstly you need to come to a realisation very quickly that when it comes to buying a home or property investment you need to be serious and also be prepared to make big sacrifices by investing your valuable time into it (even if you are being represented by a buyer’s agent advocate) and treat it like an important project that must be completed successfully.
So really, you only have 2 options when it comes to the buying process. “Do it yourself” or “Employing the services of a buyer’s agent or advocate”.
Option 1: “Do it yourself”
With this option you must be prepared to undertake a lot of work in terms of researching the different properties and different locations, sales analysis, etc. And, of course negotiating, either private sale, auctions, pre-auction or post-auction. As you can see, “Do it yourself” does have its draw-backs especially if you’re time-constrained due to kids and family pressures as well as work pressures which may include running your own business or you’re just simply too busy in the corporate world…So a good question to ask yourself to determine whether this is the best option for you – Are you equipped with the right tools to handle the stress and confusion when it comes to buying a home of investment property?
Option 2: “Employing the services of a buyer’s agent or advocate”
The second option may be a more appealing option for you, especially if you are time-constrained (too busy at work or too many family commitments) and either up-sizing to a larger home or down-sizing to a smaller home or simply investing in a property. The great thing about this option (provided that you select an experienced buyer’s agent who knows what they’re doing) is they’re the one’s undertaking this due diligence for you which involves analysing comparable sales and comparing to the selected property and examining the current real estate market conditions in the area. The purpose of undertaking this very important due diligence is of course to determine an appropriate buying range or market estimate for the buyer for each selected property. It also enables the buyer to make an informed purchasing decision as you will normally find most decisions are based on price…So a good question to ask yourself to determine whether this is the best option for you – Are you time-constrained and therefore can’t devote the time that is required for research, due diligence and of course negotiating yourself the best price and conditions?
In a hot market, vendors or sellers are often keen to sell their property at auction to ensure open transparency. But for buyers, the high-stakes pressure environment of an auction can be quite a daunting, stressful and confusing purchasing strategy for them, especially if they have never bid at an auction!
All buyers though do have an opportunity to negotiate a successful purchase prior or before an auction, however, it is largely dependent whether the vendor or seller is open and comfortable in accepting offers prior to auction. It is also subject to how you (if you decide to do it yourself) can handle these negotiations with the selling agent or seller. For a vendor or seller to be open and comfortable to selling their property before the auction, it really depends on how many decision-makers or stakeholders are involved. If there are too many stakeholders involved, negotiating a purchase prior to auction may prove to be far too difficult and auction may be the only way to purchase this property. Another factor that may decide whether or not the vendor or seller may be open to selling their property prior to auction is how they handle stressful situations. Auctions can be just as stressful for the vendor or seller as it can be for the buyer. If the vendor has already purchased elsewhere for instance, they may be more willing to consider a pre-auction offer as a deal negotiated before an auction gives certainty to both parties.
Making an offer prior to an auction can be very difficult and in my opinion is the most difficult negotiations you will ever encounter! A buyer’s agent or advocate representing you in this type of scenario should definitely give you added confidence as they will know exactly what to do in these types of negotiations and how to play the negotiation game. In addition, a buyer’s agent or advocate should also provide you with a distinct advantage over other competing buyers. If you or your buyer’s agent or advocate plays the right cards, you can certainly come up trumps as the new owner of this property – and without having to deal with the stress and confusion of having to bid at an auction and also being forced in paying a premium if there is substantial interest and competition from other buyers.
To successfully negotiate a property purchase prior to auction involves the following steps:
STEP ONE (1): Market knowledge & experience is the key to your success!
The listing agent may have provided an estimate of the likely sale price achievable at auction in their statement of information. However, this is an estimate only and in most cases they often include cheaper properties that in some cases aren’t comparable to deliberately entice potential buyers to purchase this property. Therefore, to work out the potential purchase price you really need to evaluate and analyse the comparable sales data carefully and compare it to the proposed property and from there determine what price you are prepared to pay for it. Having a property adviser, buyer’s agent or advocate representing you during this due diligence period will not only save you time and money but will eliminate stress and confusion!
How does a buyer’s agent or advocate get access to this valuable sales data information? They do this by having exclusive paid access to important sales databases which is usually only available to a licensed estate agent or property professional. With this sales data they can analyse and compare the sale price of similar nearby properties that have recently sold – either at auction or by private sale or private treaty. Effectively, they undertaking pre-purchase due diligence on your behalf and providing you with a market appraisal and making a recommendation on what the property is worth range you based on the comparable sales and the current real estate market in the area.
Importantly, always ask if any other offers have been made – and if so, what sort of money is on the table. Once you have a good idea of what you think the property market value is and the level of overall buyer interest, consider making an opening reasonable offer – ensure you have some extra fuel in the petrol tank.
The overall key to successfully negotiating a purchase prior to auction is having “market knowledge” and understanding how the auction system works.
STEP TWO (2): Never reveal your hand until you need to!
Selling agents are paid to achieve the highest and best possible price for their vendor or seller. An effective and successful selling agent will always ask the buyers questions relating to price and the chances are that you’ll be asked from the selling agent how much you’re willing to pay for the property. So make sure that you’re really on your guard and don’t say or give away too much to the selling agent as this will limit your future bargaining power in the negotiations – especially if the agent has received other pre-auction offers.
Having a buyer’s agent or advocate representing you in any purchase negotiations with a selling agent certainly increases your overall chances of achieving a successful outcome as they are the master real estate negotiators and would know what to do and how to play the game especially when a matter involves a pre-auction negotiation.
STEP THREE (3): Always play to win & be strategic at what you do!
For a pre-auction offer to have a real chance of being accepted by the vendor or seller it really needs to be unconditional. Therefore, it is so critical to have all of your ducks lined up in a row when making a pre-auction offer and that’s why you really need to analyse the comparable sales and examine the current market to determine a maximum price you will pay for the property. By being prepared puts you in an excellent position to successfully negotiate and secure the purchase on the best terms and conditions possible. Finally, before commencing any negotiations with the selling agent you need to ensure that the contact of sale and vendor’s section 32 has been reviewed by a licensed and qualified conveyancer, solicitor or lawyer. This of course can be reviewed at the same time that the comparable sales are being analysed and evaluated.
If it appears that negotiating a purchase before auction is becoming too difficult or taking far too long or your offer or further offers have been rejected outright with no further opportunity to negotiate, always be prepared to walk away (especially if the vendor’s or seller’s asking price is too high or above market price). Anyway, you can always attend the auction and see what happens, and who knows you may have an opportunity to buy it at auction. Either way, you enjoy peace of mind knowing you haven’t over paid for the property. That’s why having a buyer’s agent or advocate representing you will ensure a successful result based on due diligence and negotiations undertaken on your behalf. And, keep in mind that their job is to always work and act in your best interests only (i.e. comprehensive due diligence) and negotiate the best price and conditions on your selected property because they are being paid by you.
RECENT SUCCESSFUL PRE-AUCTION NEGOTIATION CASE STUDY:
Recently, I successfully negotiated and secured a property purchase in Aspendale Gardens on behalf of a client. The secret to my success was quite simple – as a buyer’s agent or advocate I had direct access to sales data which gave me a distinct advantage over other competing buyers. Having access to this comparable sales data I was able to very quickly establish what the “Suggested Buying Range” should be to ensure that my client would not being overpaying. Also, knowing what price represented good buying value for this property (instead of relying on the selling agent’s opinion) gave my client a distinct advantage over other buyers at the negotiation as we had a game-plan and purchasing strategy ready to be implemented and actioned as soon negotiations commenced with the selling agent – remember information is power! And, remember too with information it enables you to move very quickly and confidently to successfully conclude negotiations as was the case with my Aspendale Gardens clients.
No one on either side of the negotiation table likes protracted negotiations so the trick here is to always aim to get a successful conclusion or outcome as quickly as possible without having to over pay. Stretching out the negotiations unnecessarily or simply being indecisive (I.e. usually infers that they have not undertaken proper due diligence) allows other competing buyers to come into the fray and potentially gazump you by submitting a higher offer. Therefore, never give your opponent or the other side on the negotiating table an inch otherwise they will always take a mile!