Pre-auction offers are rearing their heads again in real estate sales. Almost unheard of at the beginning of the year, buyers are trying their luck with pre-auction offers to ward off the competition, says Dylan Turner, principal at LJ Hooker Manurewa.
Turner has seen buyers make very good offers off the bat, to avoid missing out on yet another property at auction.
“We had a family that had just missed out on house after house. They were sick of missing out. So they put in a really good offer, and it was accepted.”
Pre-auction offers are made by potential buyers prior to auction day. Look for the words “unless sold prior” on a listing, says Turner. This indicates the vendor might be willing to take an offer. “If [the listing] doesn't say that, you're not legally allowed to accept pre-auction offers.”
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When they receive a pre-auction offer, vendors have two choices: to accept and withdraw the property from the market, or bring the auction forward.
In the case where the auction is brought forward, the pre-auction offer will be the opening bid. “The property is on the market at the price offered by the buyer when the auction opens,” says Turner. “Another dollar more and it's no longer your home. “
Agents must inform all registered bidders if pre-auction offers have been made by other parties. “Clarity around this is very important,” says Turner. “Especially if it’s a first-time buyer.”
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It’s rare to have conditions in pre-auction offers, but there are cases where vendors are swayed by a buyer’s story. “It happens. But if [the offer] is conditional, the owner will be taking a risk on it.”
Buyers who need to make conditional offers are often better off waiting to see what happens at the auction, says Turner. “If the property doesn’t sell, they can then put unconditional offers in.”
Buyer’s agent Nicky Ramsden, of Buyer’s Agent New Zealand, says the main reason buyers put in pre-auction offers is to reduce the competition, although it’s sometimes for personal circumstances.
“They might want to put in a finance clause or other conditions. [Or] they are prepared to make a higher offer to get a longer settlement,” says Wanaka-based Ramsden, who often acts on behalf of Australian and Auckland buyers.
Another personal circumstances reason for a pre-auction offer is the buyer may be looking at more than one property. “If they could get this property, then they wouldn't chase that property,” she says.
Ray White head auctioneer Sam Steele says pre-auction offers are on the rise. Photo / Fiona Goodall
Whether a buyer is putting in a pre-auction offer, or going to auction, they need to have done their homework, says Ramsden. “You’ve done all your due diligence, you’ve got all your planning information, you know exactly what you’re up for.”
She says buyers should move fast when they see a property first listed. “When a property's advertised for auction, it doesn’t mean it will go to that auction date. So the minute you see a property that you think is appropriate, you need to get your A into G because that auction could be brought forward.” She adds that pre-auction offers need to “look really good”.
Agents have been reporting an increase of FOMO (fear of missing out) in the market, with the drop in new listings putting pressure on buyers for the first time in over a year.
Ray White head auctioneer Sam Steele says he’s seen a noticeable increase in the number of pre-auction offers in recent months. In the majority of cases the auction is brought forward once a pre-auction offer is accepted, says Steele.
“Last week alone I had four pre-auction offer auctions, where the offer had been accepted. It’s a very noticeable increase from 12 months ago.”
Steele says pre-auction offers are returning thanks to a warming market. “We've seen the number of average registered bidders almost double in a year. For Ray White New Zealand, the average number of registered bidders has gone from two in July last year to an average of 3.8 in July this year.”
Turner says typically when there is a pre-auction offer, the buyers want the listing withdrawn, but the owners want to take the offer to auction. “It is a bit of an arm wrestle,” he says.
“Sometimes my vendors are happy [with the pre-auction offer]. They love the people and love the money, and say: ‘let’s just withdraw it from the market’.”
To accept a pre-auction offer, most vendors need assurance that they won’t get more in an auction, says Turner. “That's the agent's fear, and the owner’s fear. What happens if there's another $10,000 out there?”
Sometimes the agent will talk to the vendor about accepting an offer if, in the process of marketing the property, it doesn’t appear that the property will achieve its original price indication.
“Sometimes in the process of marketing the property, we find out that the market’s just not at that level [of the appraisal]. The agent’s expectation comes down, and the owner’s expectation comes down as well.”
Examples of homes that sold after a pre-auction offer include a 1990s Remuera do-up in February. The owners accepted a pre-auction offer of $2.95m, but after 28 bids on the day the home sold for $3.511m. The RV was $3.3m.
Likewise a two-bedroom stucco bungalow in Westmere Park Avenue, Westmere, sold for $1,795,500 after a pre-auction offer brought the auction forward in March.
Tips for successful pre-auction offers
1. Don’t be embarrassed to ask the real estate agent if the sellers will accept an offer. It costs nothing.
2. Get pre-approved finance.
3. Make your offer on a signed sale and purchase agreement to show you’re serious.
4. Offer as close to the top as you’re willing to pay.
5. Be flexible, such as allowing a longer or shorter settlement.
