How to price a pre-auction offer?

[rizzle]

As the title suggests how should I price a pre-auction offer? This is for PPOR so not necessarily interested paying absolute rock bottom - more interested in securing a place that I would be happy to call home. Should I go all guns blazing with the most I'm willing to pay for the property, or still leave some negotiation wiggle room? Looking at sold price history in the area it's probably worth between 470 and 530 (2/1/1 in St Kilda, Victoria).

If a place is going to auction my strategy is to get an offer in beforehand, so acting fast is essential.

Thanks in advance.

 

[r3ckless]

This is a tough one.. going in max u pay increases the chance of getting it. But akso shows what u are prepared to pay and thus reserve set accordingly.

Going in low decreases your chances of getting before auction but still holds your max..

 

[Peter_Tersteeg]

There's no right answer here and the best approach may depend on the local market conditions.

If the market is hot, a low-ball offer is likely to be dismissed out of hand. The agent will know that it's likely to go for more than your offer at an auction and most vendors will simply wait.

On the other hand, if you make a high offer, you'll possibly pay too much for the property, or you'll simply reveal the minimum you're willing to pay at the auction and the auctioneer might use this to their advantage. Of course, a strong offer that's accepted means you avoid the auction altogether, the property is taken off the market and it's yours (avoiding the potential of a runaway auction).

If the market is slow you've got a better opportunity with a pre-auction offer. A low-ball offer may still be rejected, but the vendor might accept it if they're not confident that the auction will even get bids. You probably wouldn't make a strong offer in a soft market unless you really want the property and are willing to pay more than you have to in order to secure it.

Right now the market in Melbourne is fairly hot. I'd suggest you either need to make a strong offer or take your chances at auction. It's not an ideal scenario for buyers either way.

 

[mikezen]

.

Right now the market in Melbourne is fairly hot. I'd suggest you either need to make a strong offer or take your chances at auction. It's not an ideal scenario for buyers either way.

How hot is bayside? Thinking of selling a townhouse in sandringham, comparable sales show that most are going over advertised price... I've had 2 vals and both are saying 850+ but I'm wondering that in auction this will push over the 900 mark,

 

[Richard Feynman]

I'd make it strong, unconditional and set an expiry "I'm looking at a couple of other places so this offer will automatically be withdrawn on <date and time>" so the vendor can't sit on their hands while the agent dicks around trying to get stronger offers from other interested parties.

 

[rizzle]

Can you clarify what unconditional means please? Does that mean I remove the "subject to finance" and "subject to building and pest inspection" clauses?

And if so aren't they important to protect myself?

 

[wylie]

Can you clarify what unconditional means please? Does that mean I remove the "subject to finance" and "subject to building and pest inspection" clauses?

And if so aren't they important to protect myself?

That is what it means and it means you would be buying under auction conditions. I would think it very unlikely that someone would take an offer that was subject to anything because they lose the momentum of the auction lead up. You would need to get your pest and building reports done and know you can get finance before making your offer.

 

[Richard Feynman]

Can you clarify what unconditional means please? Does that mean I remove the "subject to finance" and "subject to building and pest inspection" clauses?

And if so aren't they important to protect myself?

Yes on all counts.

Don't do anything you're not comfortable with.

You can, of course, arrange to have the B&P reports done before you make your offer.

Have you talked to your broker? How confident is she/he that you will obtain finance?

 

[rizzle]

How is ever making an offer unconditional safe though? What if you have a perfect financial profile but you can't get enough finance on some silly technicality.

 

[rizzle]

Sorry one more question, the solicitor just quoted $110 to review the contract and recommend any clause additions. Is it fairly standard practice to pay a fee like this before every offer is made?

 

[wylie]

How is ever making an offer unconditional safe though? What if you have a perfect financial profile but you can't get enough finance on some silly technicality.

Wouldn't you have the same risk of a silly technicality if you bought the same house at auction?

 

[rizzle]

Finally does this seem reasonable (conveyancer with a solicitor arm):

• We charge $110.00 (inc GST) for a pre-purchase review of a Contract and Section 32 Statement for an apartment purchase.
• We charge $895.00 (inc GST) plus disbursements to act in relation to purchase of an apartment/unit.
• Disbursements are charges levied by authorities for searches, land information certificates etc. and depending on the certificates required the cost is approximately $300.00
• If you are purchasing a unit which forms part of an Owners Corporation (formerly Body Corporate), and it is necessary for us to obtain an Owners Corporation Certificate prior to settlement, there will be an additional cost of $170.00 for each certificate

Totals to $1475 for conveyancing for a 2/1/1 in St Kilda (sub $550k). Is that a bit expensive?

 

[rizzle]

Wouldn't you have the same risk of a silly technicality if you bought the same house at auction?

Good point - how does one prepare for this scenario then? Ensure a good broker?

 

[D.T.]

Good point - how does one prepare for this scenario then? Ensure a good broker?

Fo shizzle mr rizzle

 

[Big Will]

Finally does this seem reasonable (conveyancer with a solicitor arm):

• We charge $110.00 (inc GST) for a pre-purchase review of a Contract and Section 32 Statement for an apartment purchase.
• We charge $895.00 (inc GST) plus disbursements to act in relation to purchase of an apartment/unit.
• Disbursements are charges levied by authorities for searches, land information certificates etc. and depending on the certificates required the cost is approximately $300.00
• If you are purchasing a unit which forms part of an Owners Corporation (formerly Body Corporate), and it is necessary for us to obtain an Owners Corporation Certificate prior to settlement, there will be an additional cost of $170.00 for each certificate

Totals to $1475 for conveyancing for a 2/1/1 in St Kilda (sub $550k). Is that a bit expensive?

I think I paid like $1,200 4 or 5 years ago for a 500k purchase so sounds about right. There would be cheaper people out there but you get what you pay for as they say.

And yes a real estate agent would advise against an conditional offer being accepted during the auction period cause if the purchaser pulls out they have to start the whole process again.

 

[vaughan]

The thing to remember is that for the vendor, the house sold at auction STAYS sold. No clauses.

For you to buy before auction you bid is going to have to be better than what they expect to get at auction.

 

[rizzle]

The theme I'm hearing is strong offer, unconditional. My broker is convinced finance will not be an issue so I would probably look to make the only condition the building & pest report (to save paying unnecessarily every time I find myself in this situation).

 

[Propertunity]

The theme I'm hearing is strong offer, unconditional. My broker is convinced finance will not be an issue so I would probably look to make the only condition the building & pest report (to save paying unnecessarily every time I find myself in this situation).

Make your offer UNCONDITIONAL. Do the P&B report now, before you make the offer. You'd need to get it done before turning up at the auction anyway.

 

[Big Will]

Make your offer UNCONDITIONAL. Do the P&B report now, before you make the offer. You'd need to get it done before turning up at the auction anyway.

I completely agree 100%, unless it is in the first week you might be able to get away with Subject to B&P but if the auction is this weekend or next I would highly doubt your offer would be accepted unless of course it is substantially higher than what the vendor & agent think it is worth.

It needs to be unco and accepted more than 3 clear business days BEFORE the auction, otherwise the deal will most likely not go through.

 

[Jacque]

1. Find out if the vendor is even willing to sell beforehand- not just take "pre-offers". There's a big difference here. You need to be clear on their strategy.

2. IF they are willing to sell prior, ascertain price. Ask the agent at what price will he/she sell prior? It may well be a price at which you change your mind and either move on to another property, or decide to wait til auction.

3. If responses to 1 and 2 are positive, then review contract ($110 is reasonable) and obtain necessary b/p reports. These are costs incurred regardless of you proceeding to auction or offering beforehand.

4. Present the one (unconditional) offer to the agent with an expiry window (and your terms) and let them know you don't want to be mucked around, you're still looking at other suitable properties, and you require a response asap. If rejected let agent know you "may or may not be" at the auction. After all, some vendors elect to go with the bird in hand rather than risk the unknown of the birds on auction day

With pre-offers in a sellers market, the earlier in the campaign the better as there is a real risk of the vendor losing their highest buyer, to other listings coming on the market. Leave it too close and those risks decrease. Best of luck with it all