Hi!
I was hoping for some advice regarding a house in Melbourne my husband and I are looking to purchase – particularly from those with experience in making offers prior to auction. As this house if for our own personal use, I’m finding I’m loosing a bit objectivity and perspective.
I’m in a quandary as to whether we should make an offer prior to auction (in 3 weeks time), or we should just attend the auction and hope for the best?
This is our perspective:
– We LOVE this house, in terms of general proximity to all amenities (train, shopping, opposite park, near library etc), the quality of the renovations, floor plan, garden etc we find it superior to the many others we have inspected. For these reasons, we think it will attract many other buyers.– The agents have quoted $900k +. The house two doors down, was probably very similar to this house but in completely original condition, sold for $950k a couple of weeks ago. This house has undergone a complete transformation and extension. I think the owners would have put at least $150k in capital improvement.
– We are thinking of offering $1.1M prior to auction with a 48 hour acceptance clause. We think this is a solid offer that the owners may accept. We believe that in doing so, other potential buyers may not have the chance to either inspect the property, or get their finances ready in time. It also avoids the emotional bidding at auction that will probably occur for a house like this. Our absolute financial limit is $1.13M. I think that if this property did go to auction, it is likely to go beyond this limit.
– We are having some hesitation now in making an offer for the following reasons:
1) We have not yet received the Section 32 from the agent, so we will have to make a written offer with a clause stating something like “Subject to the Section 32 being acceptable…”. Are there any traps in doing this?
2) If the owners refuse our offer, the agents would then advertise the property being $1.1M +. I feel that other serious buyers will then raise their expectations that the price will likely go to $1.2M, $1.3M etc. At the moment, with the advertised price of $900k+, I’m hoping that other potential buyers will not expect the price to go for more that $1.1M. Is this being a bit naive of the current buyers in the market?What do you think is an appropriate course of action? For this property and the current market, do you feel an offer of $1.1M/$1.3M is enough to convince the owners to stop the auction?
Thanks in advance.
CrownofgoldHi Crownofgold,
Congratulations on the find! It’s hard to find something you absolutely love, and still be able to afford it these days!
The issues with loving the house, is the emotional attachment when you get into auction, but I’m sure you are aware of that.Personally, I find auction only benefits the vendor in this current climate (undersupply of quality houses). For a property I am interested, I always try to secure it before too many people gets a chance to view the property. Especially if you are in a position to do so (ie, got finance sorted)
I’m not sure if you are aware of the recent raid on real estate agent offices in relation to an investigation of underquoting allegation. Essentially, the consumers affairs Victoria considers underquoting an unacceptable practice and a waste of consumer’s time when the RE low balls property price range. Although it is sometimes difficult to prove in an auction environment, but you are offering 20% over the quoted price, I think that is a pretty decent offer. This is just me, but I would probably offer ~1.085M
Reason being:
1, which is just over 20% over the quoted,
2, it’s not a rounded figure, so it gives the illusion that you are giving them everything you can
3, have more room to move to in terms of negotiateAnd if it doesn’t get accepted, you probably have grounds for consumer affairs to investigate the RE (if that is the type of things you wanna pursue)
For more info: http://www.news.com.au/business/money/story/0,,25851463-5013951,00.htmlBefore you make the offer, I would recommend that:
1, understand the current interested parties and their price range. (REA will always be vauge, but still good to understand your competitors)
2, understand the reason why the vendor is selling. (Negotiation theory suggests you should offer something that worth little to you, but worth a great deal to the vendor, you can’t offer them anything meaningful unless you know what they want. Eg. if they need to move country, then offer quick settlement. If they are looking for a house to buy after the sale, then offer long settlement or for them to rent back until they find a house. If they are scared of risk, maybe waive the pending finance clause….etc)
3, research for reasons why your offer is reasonable. (eg recent area sales – If you search through the forum, you will find some kind offers from generous veterans to generate a report for free:
https://www.propertyinvesting.com/forums/property-investing/value-adding/4327810
)Regarding your hesitation:
Waiting for vendor statement is always a pain, but any decent vendor real estate agent will delay this to ensure the property has as much exposure as possible. I haven’t made a header of agreement that you suggested without legal advise. So i’m not sure. But it is vital that vendor statement (sec32) is satisfactory.
Agreed- that it’s a risk that your offer will set the baseline for other bidders. That is why the 48hr clause comes in handy, or maybe throw in reasons why you cannot turn up to auction. I think it’s risk that’s worth taking?Even if 1.1m is not enough to convince the owner to stop the auction, it’s a great starting point for negotiation! (don’t give the REA the idea that it’s only a starting point though, only being negotiation if it gets rejected – by asking why. Keep in mind that any genuine bid will need to be taken to the vendor, so you will have opportunities to make subsequent offers )
Final recmmendation – which is a toughy if you love the property. Be prepared to walk away when it becomes too expensive. There is no point getting yourself into financial difficulty, only to find that you can’t afford it, and have to sell it.
Best of luck – let us know how you go!
KennyI did it with the second house I bought (3br townhouse in Hawthorn) a number of years back now. RE agent was quoting a range and said vendors only interested in offers prior that were above that mark. At that time underquoting was standard anyway. In our opinion that house was in the upper ranges for quality in the price range we were looking at (frankly nothing else came close), so we put in a fair offer, they came back with $10k more and we snapped it up. They got the price they wanted, and we got it guaranteed at a price we were happy with as against taking the risk that someone with deeper pockets turned up at auction wanting it.
As long as its a price youre happy with, go for it. Nothing bad can really happen (sure maybe you could get lucky and get it cheaper at auction, but you could also get unlucky and have it run hot and go for more). Its a price youre happy with and prepared to pay, so if they accept you should go into it happy with the result.
Hi Kenny
Thanks for your well considered and excellent response. It was exactly the kind of advice we wanted to hear.Thanks bjsaust for passing on your experiences.
Unfortunately we were contacted by the agent today who said that she was still chasing up the Section 32. I told her that we were going to proceed in giving her a written offer today to pass on to the owners without the Section 32. She said that she couldn’t accept it because it wasn’t on the contract and it was company policy. We might walk away after submitting the offer and there would be nothing legally binding us.
Is she correct? Can she not accept our offer just because it’s not on the contract?
Crownofgold
Crownofgold,
This is more a legal matter, so I am not qualified to respond.
However, I have been in the similar situation where the REA will not take any offer until the sec 32 is ready. This is general practise in Melbourne. But a heads of agreement written up by a solicitor or even yourself (ie your offer to buy the house subject to sec 32) is a binding contract between you and the vendor. Once accepted by both parties (signed and witnessed) , I doubt anyone will be able to “walk away”. Of course the vendor does not necessarily need to enter in this agreement with you, but that is for the Vendor to decide, and not the Real estate agent. Real estate agents are not legally trained to deal with complex matters, so it’s easier for them not to deviate from common practice.I would recommend you obtain legal advice on this matter.
Good luck
KennyCrownofgold,
I have done this before for an apartment that was next door which I was very interested in an wanted to snap it before the auction. I was in the same quandry: the REA did not have sec32 and said that they could not take up the offer. What I realised what that the REA are essentially sales-people so I wrote an email nonetheless letting them my expectation with the statement that the intent of this offer is subject to sec 32. My strategy was to get the REA interested in me as a serious buyer. Yes, we waited for the sec 32 and then made a formal offer but what it did for us was put us in the REA's face.
Lastly, before I wrote the email, me and my wife sat down and decided beforehand what would be our walk-away price and what would be our starting price.
Good luck and may you find home of your dreams.
Dear Crownofgold,
All agents tend to encourage potential buyers to make offers to buy before auctions as this is the best way to evidence the level of market interest on the individual property offered for sale.
If the offer made falls within the selling range, it may be either used to adjust the reserve price upwards or, if it falls short of the reserve price, discarded altogether.
Generally a vendor would only sell before auction if there is little market interest on the property and they're certain that they can't achieve a higher price through a competitive auction environment.
Once you have made an offer to buy before auction, it will not be confidential. The agents are free to communicate your offer to other buyers in order to encourage them to offer more.
To counter this possible scenario, have just that little bit more $$$ in your kitty than what you would be offering. You might find it very handy come the auction day in case your offer is rejected, Or if the vendor comes back with a counter-offer.
PS. Couple of other things:
1. a vendor has a right but not an obligation to sell, meaning they can reject your offer and are not obliged to give a reason why
2. if it gets to auction scenario, remember to slow the auction down at every opportunity (ie if auctioneer is asking for $10K advances and you are one of the main bidders, keep offering them $5K's etc.)
Wishing you best of luck and nerves of steel.
m
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