Why Buying Early In An Auction Campaign Is Crucial
When it comes to Auctions - don’t be scared, be organised!
I’ve personally started the hunt for my next purchase, number 28!
This week I’ve missed out on two properties that were auction focused sellers, some deals just don’t stack up and all you can do is make your best offer and walk away if it’s not meant to be. That’s not a fail, it’s strength to have that market knowledge & confidence to jog on if the terms don’t work for you.
With my extensive real estate industry I’m well versed in the art of auctions, so let’s break down a few recent examples and review my auction buying tips for success.
Case Study 1
Me, Miami, Gold Coast
I spoke with an agent last week in Miami, QLD who was bringing to market last Saturday 1 x half of a duplex pair which was listed for a late July auction date. I wasn’t interested in that single home but instead keen to buy both to secure the 1030m2 land to create 4 x luxury duplex.
The agent told me $1.8m would buy the lot, basically $900k each owner.
Knowing they would be bowled over with buyer interest on the single duplex I pushed to wrap up a deal prior to the first open home and prior to the real auction campaign building momentum.
I offered $1.8m straight up as I was told they would accept this. The owner that was on the market agreed terms, however, the off market neighbours countered offered at $1.2m - thinking that I was to make too big a profit on the site when in control of both duplexes.
That effectively killed the deal because it was never going to stack up at the price they were holding out for.
Time dragged on due to their inability to negotiate and along came the first open home on Saturday. The agent was expecting offers in the $800’s, instead on the first day they had an offer at $1m.
Should I had waited for an auction it would have killed all hope of bringing this deal together as I would have had to compete with a huge number of end users on the listed duplex.
This is a clear example of needing to beat the market to any real opportunities before you have to pay retail with the hordes of end users. This one was out of my control but worth the shot to try.
Case Study 2
Hello Haus Client, Hills District, Sydney
My clients has spotted a house they wanted to pursue having been searching for some time in the local market. We did our due diligence around the price being worth $1.7m, agent was quoting $1.55m+ for the auction campaign.
Focused on trying to buy at the low end, they set me a target price for negotiation that was below the price I felt was fair market value. The offer of $1,670,000 was rejected. The sellers proceeded with their plans to sell under hammer with buyer competition later that same week.
We registered to bid at auction, with the clients setting me an increased auction bidding limit of $1,750,000. We were successful, winning the auction at $1,730,000.
Whilst the client was extremely happy to have secured the home and to have saved $20k below their auction target price, the story could have been very different.
On the Monday following the auction, I reached out to the agent whom I knew and asked what offer would have secured it last week when our offer was made but rejected by the sellers - he said $1.7m would have stopped it.
In a rapidly rising house market in Sydney and hugely competitive suburb, falling back on the due diligence we had done upfront around comparable sales would have been the smarter option, and, in the long run, would have saved them time, energy, stress and $30,000.
In the current market conditions nationally right now, it’s so important to act with speed to get through the research (due diligence) stage and put yourself in the best position to secure the home or investment before you give other buyers time to compete against you.
Getting in early is beneficial:
- It rushes other buyers who feel like they are under too much pressure to act fast and make a key financial decision, often they won’t offer at all when put under extreme pressure by the agent to beat your offer.
- When others haven’t had the chance to complete their DD (no B&P or strata report for example) when you are ready to sign a contract, they are unable to make key decisions and back off entirely to avoid risk.
- Buyers are less likely to pay an emotional price very early in the campaign to compete with your offer, over time during the campaign the excitement & FOMO builds, bank of Mum and Dad comes into play if they have time to workshop things should they be pushed beyond their financial means.
- If you have to compete at auction, often this invites emotional end user bidding which can drive prices up.
My top tips for auction properties:
- Have pre-approved finance in place.
- Get to properties pre/off market to lessen the buyer competition.
- Act with speed in the research stage when they know a property is of serious interest.
- Put a fair offer on the table first, don’t start with a low ball offer which they are likely to reject and further delay the process.
- Back everything up with written offers - aim for the least amount of conditions or changes to the contract of sale, make it easy for the seller to accept your offer.