Do I make a pre-auction offer or go to auction?

This is one of the trickier decisions you’ll make as a buyer, and the answer changes from property to property depending on the moving parts.

The situation is usually: you’ve found a property you’re keen on, the auction is three weeks away, and you’re wondering, “do I put an offer in now, or do I wait and bid on the day?”

Some properties are almost guaranteed to go to auction. It might be a divorce or deceased estate, where the sellers need to show they got full market value. It might be a rare property that’s hard to price, or there are simply too many interested buyers for the agent to negotiate privately. Or the agent just runs everything to auction and doesn’t like doing deals beforehand.

On the other hand, a nervous or committed seller, a property that won’t draw a crowd, a buyer with a standout offer, or an agent who likes to get a deal done can all set the scene for a pre-auction sale.

Here’s how I work it out. It comes down to 3 things: the property, the competition, and the agent and vendor.

1. The property

Who is this property going to appeal to? Is it a downsizer’s home, a first home buyer’s apartment, or an investor’s pick? If it appeals to more than one buyer pool, expect more competition and a stronger push to auction.

If it’s compromised in some way, like a busy road, a tricky layout or a lot of work needed, it will likely suit a particular buyer only. Fewer buyers means a pre-auction sale is more on the table.

If a property is rare and hard to price, the agent may not know what a good offer looks like versus an average one, so they’d rather let the bidding decide.

Ask yourself: is this property rare, or will something similar come up again soon?

2. The competition

Start by looking at how many properties similar to this one have sold recently. If there’s plenty of supply, buyers have options, and there’s more chance the vendor will take a pre-auction offer. If similar properties rarely come up, it’s more likely to go all the way to auction.

Then get a feel for:

• The market. Are properties selling quickly, under 14 days? Are most going to auction? Both point to a hot market. If they’re sitting for more than 30 days, the market is cooling or the property has a problem.
• How many contracts have been issued
• Whether buyers are coming back for second inspections or ordering building and pest reports
• Whether offers have already been made, and whether the agent is inviting them

3. The agent and vendor

Some agents take every property to auction. Others are happy to present a strong offer to the vendor. Knowing how the agent operates is super important to your timings.

The vendor’s situation is equally as important. Have they already bought somewhere else? Are they waiting to sell and then buy? Do they have a deadline? A motivated vendor may want certainty of a sale before auction. Others prefer to wait.

Note: pre-auction offer shows the agent what you’re prepared to pay. If it’s knocked back, that number can become the anchor price for other buyers and the vendor. You need to be prepared to make a bold enough offer that gives you a decent chance of buying the property. Sometimes however, you can put in a pre-auction offer if you are testing the price and the risk vs. reward is in balance.

Putting it together

Weighing up these 3 factors will help you work out the most likely scenario: auction or pre-auction.

If it’s a deceased estate or a divorce sale, there’s usually no point putting in a pre-auction offer. It will most likely be rejected, and you’ve shown your hand.

If the agent is angling for auction because there’s strong competition, you might consider a strong pre-auction offer to take it off the market before auction day.

If it’s an auction campaign but the agent is actively encouraging pre-auction offers, I wouldn’t rush in. I’d be getting ready to make an unconditional offer, but I might wait for someone else to offer first, or even wait until auction.

A quick note on NSW rules

Make sure you have your finance pre-approval, contract review and building and pest inspection sorted first. At auction there’s no cooling-off period, and you’ll need to pay the deposit on the day. Before auction, the vendor will often ask you to waive the cooling-off period as well, so you need need to be ready for unconditional offers.

So which should you choose?

I get enquiries from buyers who want help negotiating or bidding at auction but don’t know yet which way it’ll go. That’s what my Evaluate & Negotiate service is for. I’ll assess the property and the campaign variables and tell you which option I think we should go with.

If you are considering this service, enquire about it as soon as you're seriously interested in the property e.g. after the first inspection. The sooner I’m involved and the more time I have, the more options you will have, and the better your chances of buying the property at a great price.

Not ready to buy just yet?

I also run a one-hour one-on-one "ask me anything property" session for first home buyers in NSW. It’s ideal if you're thinking about buying and have questions about the process. You might want a sounding board on your brief and what to focus on, guidance on how to make offers, what to look for at inspections, or what to ask agents. You don’t need pre-approval yet.

If you'd like more info, please email me rhiannan@sourcedproperty.com.au.

Know someone who would enjoy this newsletter?

If you have a colleague, client, friend, or neighbour who is curious about Sydney real estate, please forward this email to them. If they like what they're reading, they can sign up here.