3 Steps For Successful Pre-Auction Negotiations

“What a buyer truly requires is a dedicated advocate who will professionally and independently safeguard and represent their best interests while guiding them through every facet of the property acquisition process,” asserts Zac Newbold.

This article is inspired by Zac Newbold’s own experiences in navigating pre-auction negotiations on behalf of his clients and during his personal property acquisitions. Negotiating a property purchase before an auction can be an exhilarating and rewarding endeavor, demanding poise, diligence, and discernment.

Negotiating a property purchase directly with the selling agent before an auction is, without a doubt, one of the most intricate and challenging aspects of the property acquisition process. So why subject yourself to the risk of either overpaying or losing out on your desired property because you lack the market knowledge, experience, or time required to negotiate the right deal?

Imagine stumbling upon a property that perfectly aligns with your preferences and goals. However, you hesitate to participate in an auction due to the anticipated stress, anxiety, and uncertainty it might entail. What’s your next move? How can you ensure you don’t overspend amidst fierce competition or, worse, lose the property to an aggressive rival bidder?

So, where do you start? What’s the plan? Firstly, recognize that when it comes to buying a home, upsizing, downsizing, or making an investment, treat it as a crucial project that demands successful completion. This often translates to a significant investment of your time, particularly if you opt against enlisting the services of a buyer’s agent or advocate.

In reality, you have two options. When it comes to the buying process, you can either go solo or enlist the expertise of a buyer’s agent or advocate.

Option 1:

This route involves extensive research on various properties and locations, sales analysis, and negotiations through private sales, auction bidding, pre-auction, or post-auction negotiations. “Do-it-yourself” certainly has its drawbacks, especially if time constraints stemming from family or work obligations are at play. You might be running your own business or have a demanding corporate job. Ask yourself this: Do I possess the tools and resources necessary to handle the stress and complexity that accompanies property acquisition?

Option 2:

“Employing the services of a buyer’s agent or advocate.” This alternative may be more fitting, particularly if time is a limited resource due to work or personal commitments. An experienced buyer’s agent will conduct comprehensive due diligence on your chosen property, determining its estimated buying range based on an analysis of comparable sales and current market conditions. This rigorous process ensures you make an informed decision regarding the property’s price. Ask yourself: Am I time-constrained, unable to devote sufficient effort to property research, due diligence, and negotiation? Leveraging a buyer’s agent or advocate for negotiations typically yields superior outcomes, saving you time, money, and stress. Attempting this alone demands substantial time and effort while inducing unnecessary stress and anxiety.

In a hot market, sellers often opt for auctions to encourage buyer competition and transparency. However, for buyers, the high-stakes auction environment can be intimidating, stressful, and bewildering, especially if they lack prior auction experience.

Buyers do have the opportunity to negotiate a successful purchase before an auction, contingent on the seller’s willingness to entertain pre-auction offers. This, in turn, relies on your ability to navigate negotiations with the selling agent or seller. Whether the seller is open to a pre-auction sale may hinge on the number of stakeholders involved. If numerous decision-makers are in play, negotiating before the auction may prove challenging, necessitating participation in the auction. Another factor is how sellers handle stress; auctions are as nerve-wracking for sellers as they are for buyers. If a seller has already secured another property, they may be more amenable to a pre-auction offer, as a deal struck before the auction provides certainty for both parties.

Successfully negotiating a property purchase before an auction involves the following steps:

STEP ONE: Property Due Diligence – Local Real Estate Market Knowledge

The listing agent may provide an estimate of the likely sale price at auction in their statement of information. However, this estimate is often inflated to attract more potential buyers. To determine a realistic “estimated buying range,” meticulously evaluate and analyze comparable sales data. Having a buyer’s agent or advocate guide you through this due diligence phase saves time, money, and reduces stress.

How does a buyer’s agent access this valuable sales data? They typically have exclusive access rights to real estate industry sales data, typically available only to licensed professionals. This data is used to analyze the sold prices of similar nearby properties recently sold, either through auctions or private sales. A buyer’s agent conducts pre-purchase due diligence on your behalf, providing a detailed property market assessment and recommending a likely estimated buying range based on comparable sales and current real estate conditions in the area.

During Step 1, it’s vital to inquire with the selling agent about the possibility of pre-auction offers and any existing offers on the property. Armed with an estimated buying range based on comparable sales and market conditions, you can confidently make an opening offer.

The key to successful pre-auction negotiation is market knowledge and understanding the auction system.

STEP TWO: Keep Your Cards Close to Your Chest!

Selling agents aim to secure the highest possible price for their sellers. They will likely ask buyers about their budget. It’s crucial not to reveal too much to the selling agent, as this can weaken your bargaining position, especially if multiple pre-auction offers are in play. Having a buyer’s agent or advocate in your corner enhances your chances of success, as they are skilled negotiators experienced in these scenarios.

STEP THREE: Always Be Strategic in Your Negotiations – Play to Win!

For a pre-auction offer to stand a chance, it must typically be unconditional. Thoroughly analyze comparable sales and the current market to determine your maximum acceptable price. Be well-prepared before initiating negotiations with the selling agent and ensure that the contract of sale and vendor’s section 32 have been thoroughly reviewed by a qualified conveyancer or lawyer.

If negotiations before the auction become protracted, or if your offers are repeatedly rejected with no room for further negotiation, be prepared to walk away, especially if the seller’s asking price is above market value. You can still attend the auction, retaining the option to purchase. Having a buyer’s agent or advocate ensures a successful outcome, as they work diligently in your best interests.

CASE STUDY: PRE-AUCTION NEGOTIATION

Last month, we successfully negotiated a property purchase in Mill Park VIC 3082 Gardens before the auction on behalf of a client. Our success stemmed from direct access to sales data, giving us a distinct advantage over other buyers. Armed with this data, we swiftly determined a realistic “estimated buying range,” enhancing our position at the negotiation table. With a well-prepared strategy, we confidently engaged in negotiations with the selling agent, resulting in a successful purchase for our client.

We’ve been involved in numerous other successful pre-auction negotiations over the years, all founded on thorough due diligence. In any negotiation, protracted discussions are counterproductive, especially when striving for a pre-auction purchase. Ensure your negotiations are efficient and decisive, backed by thorough research and preparation.

Never give your negotiation opponent an advantage; be strategic and resolute in your approach.