“What a buyer needs is someone who’ll support, protect and represent their best interests in a professional and independent manner, while at the same time assisting them during every step of the property buying process”, says Zac Newbold.
This article written is based on Zac Newbold’s own personal experiences when involved in pre-auction negotiations on behalf of his buying clients, and when purchasing for himself in a private capacity. Negotiating a property purchase prior to an auction can be quite an exciting and rewarding experience, but it calls for calm, care and consideration.
Negotiating a property purchase with the selling agent prior to auction is definitely the most complex and difficult of all property purchase negotiations. So, why would you want to take the risk of either overpaying or missing out purchasing the property altogether, because you don’t have the market knowledge, experience or simply don’t have enough time to spend negotiating the right price for the property…
You’ve just came across a property that draws your attention and you plan to buy it as it seems to tick most of the boxes (suits most of your requirements). However, there is still one major hurdle to overcome. The issue is you’re not confident in buying this property at auction due to the fear of 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 runaway buyer competition, or worse, missing out completely on purchasing your chosen property through the intimidation and aggressive bidding by a competing bidder?
So where do you start? What do you do and how? OK, firstly, you need to come to a realization very quickly that when it comes to buying a home, up-sizing or down-sizing, or buying an investment property, you need to treat it like an important project that must be completed successfully. This will involve a significant investment in your time, particularly if you decide against using the services of a buyer’s agent or advocate.
In reality, you only have 2 options. When it comes to the buying process you can either do it yourself or you simply employ the services of a buyer’s agent or advocate.
Option 1: This involves a lot of work in terms of researching the different properties and different locations, sales analysis, etc. Also, of course, negotiating by private sale, auction bidding, pre-auction or post-auction negotiation. “Do it yourself” does have its draw-backs especially if you’re time-constrained due to family or work pressures. This may include running your own business, or maybe you’re just simply too busy in the corporate world. So, a good question to ask yourself to determine whether this option is the best option for you – Am I sufficiently equipped with the right tools to handle all of the stress and confusion that goes with buying a home of investment property?
Option 2: “Employing the services of a buyer’s agent or advocate”. The second option may suit you better, especially if you are time-constrained (too busy at work or too many personal and family commitments). An experienced buyer’s agent will undertake thorough due diligence on your behalf on your proposed property purchase to determine its estimated buying range based on evaluating comparable sales and current real estate market conditions in the area. The purpose of undertaking this very important and time-consuming due diligence is to determine a realistic estimated buying range for the selected property. It also enables the buyer to make an informed purchasing decision in respect to price. A good question to ask yourself is – Am I time-constrained and therefore can’t devote the necessary time required for the property research, due diligence and of course negotiating the best price and conditions for my chosen property? Using a real estate buyer agent or buyer’s advocate for your negotiations will generally yield you much better results while saving time, money and stress. Trying to do this by yourself will require a large investment of your time and effort whilst causing you unnecessary stress and anxiety.
In an over-heated market, vendors or sellers are often keen to sell their property at auction to ensure buyer competition and open transparency. But for buyers, the high-stakes pressure environment of an auction can be quite a daunting, stressful and confusing purchasing strategy, especially if they have never bid at an auction before!
Buyers though do have the possibility 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 the auction. It is also subject to how you (if you decide to do it yourself) are able to handle these negotiations with the selling agent or seller. For a vendor or seller to be open and comfortable in selling their property before the auction, may depend on how many decision-makers or stakeholders are involved. If there are too many stakeholders involved, negotiating a purchase prior to auction may prove too difficult and therefore, buying the property at auction may be the only way to secure it. 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 are just as stressful for the vendor or seller as it is 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.
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 as many potential buyers as they can to be interested in buying their property so the selling agent looks good on auction day! Therefore, to work a realistic ‘estimated buying range’ you really need to thoroughly evaluate and analyse the comparable sales data and compare it to your selected property and from there determine what price you are prepared to pay for it. Having a buyer’s agent or advocate representing you during this due diligence period will save you lots of time and money and will relieve your stress, by guiding you through every step of the buying process!
How does a buyer’s agent or advocate get access to this valuable sales data? They do this by having exclusive access rights to real estate industry sales data which is usually only available to a licensed property professional. This information is used to analyse and compare the sold price of similar nearby properties that have recently been sold – either at auction or by private sale. Effectively, they undertaking pre-purchase due diligence on your behalf and will usually provide you with a detailed property market assessment along with a key recommendation on the property’s likely estimated buying range based on comparable sales and the current real estate market conditions in the same locality.
During Step 1, it’s vitally important to always ask the selling agent if the vendor is open to accepting offers prior to auction? Or, if there have been any other offers on the property and if so, what sort of money is on the table. Once you have a good idea of where you see the ‘estimated buying range’ for the property based on comparable sales and market conditions within the area and also having an accurate knowledge of the level of overall buyer interest, you can then 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 multiple 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 certainly know what to do and how to play the negotiation game especially one involving 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 are prepared to pay for the property. Being prepared and armed with sales data information puts you in an incredibly strong position to be able to successfully negotiate and secure purchase on the best terms and conditions. Finally, before commencing any formal negotiations with the selling agent you must ensure that the contact of sale and vendor’s section 32 has been thoroughly reviewed by a qualified conveyancer, preferably a solicitor or lawyer.
When it appears that negotiating a purchase before auction is becoming too difficult or negotiations are become protracted or taking 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 asking price is too high or above market price). Remember, you can always attend the auction and see what happens at the auction, as you may still have an opportunity to buy it at auction. Either way, you enjoy peace of mind knowing you haven’t over paid for a property. That’s why having a buyer’s agent or advocate representing you will help ensure a successful outcome based on their due diligence and negotiation skills. And, keep in mind that their job is to always work and act in your best interests by negotiating the best deal for you on your selected property, because they are being paid by you.
CASE STUDY: PRE-AUCTION NEGOTIATION
Last year, we successfully negotiated and secured on behalf a client a property purchase in Aspendale Gardens prior to auction. The secret to our success was quite simple – as buyer’s agents we had direct access to sales data which gives us a distinct advantage over other competing buyers. Having access to this comparable sales data, we were able to very quickly determine a realistic “estimated buying range” based on comparable sales and local real estate market conditions. Knowing what price represented good buying value for this property (instead of relying on the selling agent’s opinion) gave us a distinct advantage over the other interested buyers at the negotiation table. We had a game-plan and purchasing strategy ready to be executed as soon as formal negotiations commenced with the selling agent – remember information is power! And, with this information it enabled us to move confidently and decisively with our negotiations with the selling agent which finally resulted in a successful purchase outcome for our client.
There have also been numerous other successful pre-auction negotiations we’ve been involved in over the years. All have been foundered on proper and effective and time-consuming due diligence.
No one on either side of the negotiation table likes protracted negotiations so the trick here is to always aim to get an outcome resolved as quickly as possible but without having to overpay.
Stretching out the purchase negotiations or prolonging the negotiation is never a very good negotiating tactic. Especially when trying to secure a purchase prior to auction. It usually infers that the buyer hasn’t undertaken proper due diligence or is simply being indecisive. This creates a chance for 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!
ONCE YOU HAVE SUCCESSFULLY NEGOTIATED & SECURED PURCHASE PRIOR TO AUCTION YOU NOW FINALLY HAVE CERTAINTY & PEACE OF MIND…CONGRATULATIONS!
We sincerely hope that you have enjoyed reading this article. Moreover, it provides you with a detailed insight in terms of what is involved in a pre-auction negotiation. If you want to find out more call Zac Newbold on +61 (0) 418 144 644.