Thinking of making a pre-auction offer? Then make sure you understand the rules.
Real Estate Buyers Agents Association (REBAA) vice president Cate Bakos said buyers looking to make a pre-auction offer needed to understand the possible processes around a pre-auction sale and be adept at negotiation.
According to Ms Bakos too many buyers mistakenly think that by making a pre-auction offer, theirs will be the only offer presented to the vendor.
“If any prior offers in the vendor’s acceptable selling range are received prior to auction, the agent is likely to inform every other buyer who has expressed interest in the property that the property will sell prior to auction,” she said.
Ms Bakos said sales agents were well within their rights to present all offers to the vendor as they were being paid to act in the best interests of their clients.
“There is no legislation which defines how agents must host a competitive pre-auction sales campaign, other than the fact that they are bound by the Act to be honest and present all offers to the vendor,” said Cate Bakos.
“How they go about facilitating the sale process is something which every buyer considering making a pre-auction offer should determine before they make any offers.
“Some agencies have a published process.
“Others determine the process based on the number of competing buyers. Some let the vendors decide. Others have their own individual preferences for handling competition.”
Processes include but aren’t limited to:
1. Boardroom auction the following day
This is where interested buyers meet at the agency and bid against each other in a boardroom where the auction is ‘simulated’ and usually hosted by an auctioneer. While it feels like an auction, auction rules may not apply. Cooling off periods may still be available depending on the timing of the sale and the state legislation applicable. Conditional offers are generally not acceptable but the agents can define whether this is the case.
2. Round-robin style
Usually undertaken via phone. The agent commits to going around to each buyer, fully disclosing each incremental offer until the last man stands.
3. Best and highest
A secret-ballot style negotiation where buyers are given one deadline to submit their ‘best and highest’ offer. In these situations, a buyer can sometimes get lucky and buy at their best and highest price when they would most likely been outbid at auction, but in most cases it is a method where remorse or disappointment strikes. Buyers don’t like flying blind or ‘guessing’ prices.
“Establishing the rules is essential because that can determine whether it’s a good idea to buy prior to auction, or a terrible idea,” said Ms Bakos.
“Not all competing processes suit all buyers, and making the decision which is right for you is vital.
“Buyers need to remember that selling agents are not acting for them, they are acting in the best interests of the vendor to get them the highest price.
“That’s why having an independent accredited buyer’s agent, one who understands the process, can level the playing field.”