Put in an offer anyway - or wait till auction?

[Uncertain1]

Here is our current situation. We are very interested in a property and have done our due diligence and are quite certain that the house has been listed for about 80K more than it is actually worth.

We thought we would test the waters and spoke to the agent about putting in an offer for about 100k under the top end of the asking range, to see if we could negotiate from that point. We were told that the vendor was unable to negotiate and would not accept offers that were below asking price. From that point, we decided not to proceed with a formal offer. The property is up for auction and we think that the vendor is hoping that a bidding war will drive the price up. It is in an area that has seen prices plateauing in the past 6 - 12 months, and we are hopeful that it will get passed in at auction.

Please could we have some advice - do you think it is worthwhile to put in an offer prior to auction for what we think the property is worth (and what we are prepared to pay), or do you think we should just listen to the REA and wait to see what happens at auction? Also - does the REA have to take our offer to the vendor, or can it be rejected without the vendor ever seeing it?

 

[Aaron_C]

Don't bother with a pre-auction offer if you are intending to bid because you are just giving the agent a free market appraisal of the property.

 

[Rolf Latham]

The property is up for auction and we think that the vendor is hoping that a bidding war will drive the price up.

Likley the vendor is clueless and is relying on their agents advice .....as you would!

ta
rolf

 

[Propertunity]

Only make pre-auction offers IF the vendor is not committed to the auction process and ONLY when you know the price the vendors will accept. Otherwise you're just wasting your time and helping set the reserve price and showing your hand in the process.

You could take your best shot and also say that you will not be attending the auction. (You must keep your word and not go too or they won't take you seriously next time).

 

[Uncertain1]

Thanks for the advice folks. We did feel like giving them any kind of offer would be ignored anyway, so we will wait and see what happens at the auction.

I really don't want to bid for the property at auction, as I am completely new to buying property, and would prefer to buy something privately. Hopefully it will get passed in and we can negotiate with the vendor afterwards. If not...well I guess it's not the PPOR for us.

 

[Propertunity]

... Hopefully it will get passed in and we can negotiate with the vendor afterwards.

Hope is not a strategy.
The only people invited to negotiate with the vendor will be either of the highest 1 or 2 bidders. Failing that, if it does get passed in and put back on the market, you may have some chance.

If not...well I guess it's not the PPOR for us.

No, it is just that you have not learned to play by the 'rules'.

I'm not sure of your area of interest, but in some areas almost all of the properties go to auction. If you take the attitude you currently have, you'd never buy anything.

I'd suggest you get a friend or relo with auction experience or a local BA who will have lots of auction experience to bid for you or try to buy prior, to give yourself any chance at all. Otherwise your hesitantcy is like waving a white flag to the REA - and they will just pass over you to a serious player.

 

[Uncertain1]

Hope is not a strategy.
The only people invited to negotiate with the vendor will be either of the highest 1 or 2 bidders. Failing that, if it does get passed in and put back on the market, you may have some chance.

I guess I should have phrased myself better - we were hoping that there would be no bids at all (told you I am completely new to this)! If there are a few low bids, we are out of the running right from the get go because the bottom of their asking price range is still 10k above what we are prepared to pay, and I imagine that they will start the bidding from that bottom of the range price. I have been attending auctions in the area, and this seems to be the way it happens when the auction kicks off with a vendor bid (which has happened every single time, due to no starting bids).

We know how much this particular property sold for 12 months ago (it's one that we were interested in at the time) and they are trying to sell it for 70k more than they paid for it, with the market considerably less vibrant than it was at the time when the vendor purchased it. It has had no improvements in that time.

I do take your point about getting a buyers agent, and it is something that we have been investigating. You are right about the whole auction thing being a preferred method of sale (which I hate). If we thought they would take us seriously, we would try with a pre-auction offer, but there is no point, given that the agent has already told us that the vendors are not prepared to negotiate on price at all.

 

[Aaron_C]

Properties that are of good quality and which are priced reasonably will always sell at auction. So I am not sure what you are hoping to achieve by hoping it passes in - all you will get are the good properties with unrealistic vendors, or the crap properties that no one wants.

 

[Ed Barton]

Properties that are of good quality and which are priced reasonably will always sell at auction. So I am not sure what you are hoping to achieve by hoping it passes in - all you will get are the good properties with unrealistic vendors, or the crap properties that no one wants.

I think the OP said the asking range was way over priced, so sounds like the former. A failed auction might knock some sense into the vendors??

 

[Jtkumnick]

I think the OP said the asking range was way over priced, so sounds like the former. A failed auction might knock some sense into the vendors??

Doesnt every buyer think the asking range is over priced?..................

 

[Sheryn]

Uncertain1

Auction is a game to focus potential buyers to play the game with a defined timeline.

Here's what I would do...if I seriously wanted this property...

1. Preorganise finance.

2. Work out the fair value price of the property - if I couldn't work the value out I would get a valuation done cost about $300, valuers can be directed by you to give a conservative price. (You will need to get REA to arrange access for valuer to the property).

Valuations can vary but allow for 10% variation, since you are paying for valuation you can talk to valuer about the valuation.

3. Talk to REA over phone and fax in your written offer which finishes before auction date. eg 2 days before day of auction. If unsuccessful then

4. Attend auction & register to bid (work out your maximum price that you will pay) bid if you need to.


That way you have tried all avenues, low fair offer before auction with set end of offer date, opportunity to potentially bid at auction and willingness to pay maximum you can afford, or if property does make it onto the market you have an idea of what seller wants and you have a piece of paper - valuation to use to put in a post auction bid and start negotiations and pest and building report to point out issues that need fixing up.

Do not show or tell REA or seller valuation price, nor pest and building report before auction as you paid to engage these professionals. (You may wish to pay approximately $600 dollars and have a pest and building report done as well as that will give you another barganining chip).

To me spending $1000 on due diligence (valuation & pest and building) gives you a some tools to use when you need to and demonstrates you are a genuine buyer if REA doesn't know you.


Cheers
Sheryn

 

[Aaron_C]

Sheryn - I would say that organising a valuation before you buy it isn't really a good idea if you are going to rely on it for finance - since if it comes in lower than what you pay for it the bank will take the lower value for financing purposes.

 

[Uncertain1]

Thanks for the advice, Sheryn! That is exactly the sort of buying process advice that I was looking for...although we might not go as far as organising an official valuation (going by Aaron_C's comments). We do have a good idea of the value of the property anyway, although I won't go into details here about how we have this information.

 

[MIW]

Thanks for the advice, Sheryn! That is exactly the sort of buying process advice that I was looking for...although we might not go as far as organising an official valuation (going by Aaron_C's comments). We do have a good idea of the value of the property anyway, although I won't go into details here about how we have this information.

Uncertain1,

I agree with Sheryn, we attended quite few auctions and eventually bought the house we live in now because of Step 4. Our bid at the auction was only countered with the vendor bid but then you are invited to further negotiations with the vendor. If the vendor needs to sell then you may be successful otherwise you will see...
Good Luck and keep me posted what happens!

 

[wylie]

Sheryn - I would say that organising a valuation before you buy it isn't really a good idea if you are going to rely on it for finance - since if it comes in lower than what you pay for it the bank will take the lower value for financing purposes.

Why would you even tell the bank what your privately paid for valuation came in at. They should not find out. If you don't let on you have had it valued, I would think they would send their valuer as per any other sale, or accept the sale price?

 

[Aaron_C]

Why would you even tell the bank what your privately paid for valuation came in at. They should not find out. If you don't let on you have had it valued, I would think they would send their valuer as per any other sale, or accept the sale price?

Because usually people do pre-auction valuations using their broker who orders one upfront from a bank.

 

[knightm]

Sheryn - I would say that organising a valuation before you buy it isn't really a good idea if you are going to rely on it for finance - since if it comes in lower than what you pay for it the bank will take the lower value for financing purposes.

why would you pay for a sworn val unless you were going to use it a ceiling for your entry price? I wouldnt think there is much point paying for it and ignoring it by paying more...if you want the place that bad just pay whatever you have to obviously you are in emotionally attached land.

 

[Aaron_C]

why would you pay for a sworn val unless you were going to use it a ceiling for your entry price? I wouldnt think there is much point paying for it and ignoring it by paying more...if you want the place that bad just pay whatever you have to obviously you are in emotionally attached land.

Sworn valuations, particularly those for banks, are generally conservative if there is no price guide such as a signed contract of sale. I don't accept the assertion that you will never pay more for a property than what a valuer says it's worth - otherwise we'd never get price growth in housing.

 

[knightm]

Sworn valuations, particularly those for banks, are generally conservative if there is no price guide such as a signed contract of sale. I don't accept the assertion that you will never pay more for a property than what a valuer says it's worth - otherwise we'd never get price growth in housing.

agreed but this isnt a bank val, its a buying estimate commissioned by the potential purchaser and you can then instruct the valuer to price bang in the middle of fair value. Also growth happens in between vals, not in between the val you commissioned yesterday and the offer you make today.

 

[Sheryn]

Why would you even tell the bank what your privately paid for valuation came in at. They should not find out. If you don't let on you have had it valued, I would think they would send their valuer as per any other sale, or accept the sale price?

Have to agree with wylie, the bank doesn't need to know you paid for a valuation and I wouldn't tell them unless you were struggling for finance and if you are struggling for finance you shouldn't be buying at auction IMHO.

Uncertain1
Another trick is to get the Property manager to give you a guide for how much the property can be rented out for even if you have no intention of renting the place.

All part of playing the game.

Below is a real story that happened in the last month..
Friend meet her son at the airport, he gave her a copy of his payslip and said the unit he used to rent was up for auction. His mum said go to the bank, she told me and I said ring morgage broker and have a look at some other properties.

The son said he was just going for a look at the auction. REA talked to the boy at the auction and said how about registering so he did, the REA said would he like him to stand next to him while the auction was on so the son said yes.

Of course the son ended up bidding and buying the unit, then the loan was organised but it was the wrong type. The son flew back for work and his mum meet him at the airport, when we found out what type of loan he had organised, he was able to change to an interest only offset account investment loan instead of a p and I home loan.

The son was a bit anxious as post auction he ordered the pest and building and valuation was ordered by the bank and he is finding out all the steps he didn't know about and is scrambling to organise.


regards
Sheryn