Number of pre-auction offers rises nearly threefold

Pre-auction offers are on the rise in the hot-again Auckland housing market and are probably here to stay, say auctioneers.

When a pre-auction offer is accepted by a vendor the auction is held early, often within days.

Buyers have a range of reasons for making an early offer but they generally hope to catch out competing buyers by leaving them limited time to complete their due diligence.

While pre-auction offers are becoming more usual, there is no guarantee the person who makes the offer will win the property at auction as there may still be other bidders.

At Barfoot & Thompson, pre-auction offers increased nearly threefold last month, from three percent of auctions for February of last year to eight per cent for February this year, says auction manager Campbell Dunoon.

Other real estate agencies report similar jumps. Ray White’s chief auctioneer John Bowring says around 20 to 25 per cent of auction stock is being brought forward, and Harcourts’ national auctions manager Aaron Davis says the number of pre-auction offers has gone from under 10 percent to 15 percent in the last quarter - that’s one in eight auctions.

Bayleys auction manager Conor Patton also reports a jump, saying sometimes considerable further bidding then takes place in the auction room.

“We had 15 of those in February, which is quite a few, and also coming into March just last week I had two and both had further bidding, and the same with February.

“I would say 90 per cent of those brought forward auctions in February then received further bidding.”

Barfoot & Thompson’s Dunoon says the increase in pre-auction offers reflects the hot housing market.

“Things have gone off. Just a lot of activity in the auction room in the last three weeks - heaps.”

There are multiple bidders, high success rates and vendor expectations are being exceeded, he says.

One auction for a Sandringham property last week was brought forward after the vendor accepted a $1.2m offer - which then sold in the auction room for $1.8m.

“The vendor had accepted $1.2m subject to any higher offer in the auction room and they got an extra $600,000.”

There was a lot of interest in the property which had land with the potential for development, but there is a lot of activity at most auctions, Dunoon says.

“We’re seeing a lot of people trying to secure a property and then, funnily enough, when we get to auction, say in two days of receiving an offer acceptable to the vendor, we’re getting multiple bids on top of that.”

Dunoon says sometimes people making the pre-auction offer have simply tired of looking at homes and just want to make an offer, while others who have missed out a few times think if they make an early offer they might get lucky.

“I think it’s more of a trend in a healthy market than any sort of psychological imperative upon a buyer. “

John Bowring, from Ray White thinks there is some buyer panic involved.

“People are worried about prices moving in a northerly direction as opposed to when they were sitting back and waiting for it to keep going south.

“I think there’s quite a few buyers out there panicking at the moment hence the reason they’re bringing the auction forward and trying to knock out their competition.”

Ray White has held a number of hot auctions, he says - last Wednesday night in Remuera eight out of nine properties sold under the hammer.

One was 16 Sprott Road in Kohimarama which had 12 registered buyers and which sold for $2.480m, well above its $1.925m CV.

That sale had not been brought forward but Bowring says another one, at 83 Barbarich Drive in Stonefields in East Auckland, was brought forward after an offer of $1.25m was accepted by the vendor.

That property then sold for $1.331m on auction night to the original buyer. Another in Mt Albert was bought forward after a pre-auction offer of $1.62m. With six registered bidders, it eventually sold for $1.74m to the original buyer.

Ray white MT Eden John Covich and Racheal Berry

Aaron Davis of Harcourts says he has three auctions this week which have been brought forward.

“That’s just me. You push that out over 15, 20 auctioneers in Auckland and you’ve got at least 50 auctions that have been pulled forward this week.”

The rise is due to market supply and demand trends and the availability of cheap money at the moment.

But people are also becoming more used to the process, he says.

“Years ago they didn’t like auction and now auction is becoming the norm. Now, people are learning they can make pre-auction offers. In the past they weren’t aware of it, so the marketplace keeps on getting educated.”

People can be strategic and have several properties they like, “so they go ‘righto, we’re going to put a pre-auction on that one, can we get it yes or no and if we can’t then we’re going to Plan B’”.

Davis says pre-auction offers can work but the person often still pays a bit more at auction. He says a woman who sold 64 Wingate Street in Avondale had a pre-auction offer of $1.35m only to have three bidders in the auction room before the original buyer purchased under the hammer for $1.5m.

And Connor Patton from Bayleys says 217 Richmond Road in Grey Lynn had a pre-auction offer of $1.85m then went under the hammer for $2.29m.

While he wasn’t sure if the same person bought the property, the auction shows there can be substantial further gains in the auction room.