As the housing market heats up and the number of days to sell shortens, more and more buyers are making pre-auction offers in the hope of scaring off the competition. Some of these offers are being made mere days after a home hits the market.
OneRoof talked to the experts about pros and cons of bringing forward an auction, and what they had to say was illuminating – for both buyers and sellers.
Ray White chief auctioneer John Bowring said that of the 115 auctions he called last month 20 percent were brought forward. That’s abnormal; typically the figure is around five percent
He said that buyers were moving fast, and were increasingly making offers after the first weekend of open homes.
“For a vendor, it’s comforting to accept a pre-auction offer, knowing no matter what they’ll get that price. For example, if the pre-auction offer is $1.5million but the bidding finishes at $1.58 million, then that $80,000 will make the vendors really happy,” he said.
However, in a hot market, holding off might be a better strategy.
“If I were selling in current market conditions, I’d be continuing to the auction date. I might have three potential buyers in the first week, but imagine what another two and a half weeks of open homes could bring – I might have 12 buyers.”
Barfoot and Thompson agent Aaron Foss said about half of his listings now get pre-auction offers. Last Sunday, he received ten emails in the space of one hour containing pre-auction offers.
He said buyers were increasingly looking for ways to avoid competing at auction. “It’s their strategy to take it off the market but it’s not always fair to the vendors,” he said.
One of his recent listings, a renovated four-bedroom house at 11 Reihana Street, in Orakei, Auckland, sold for $2.51 million after the vendors brought the auction forward following a pre-auction offer of $2.2 million.
The house was bought by a local family who had missed out on a lot of properties beforehand, Foss said. “We have people who have sold their place and have nowhere to go and they are competing with Kiwis coming back home from overseas.”
Another of his listings, a four bedroom house in St Helliers, sold under the hammer for $2.25million after just four days on the market. The buyer had placed the pre-auction that brought forward the bidding.
Bayleys Remuera agent Gary Wallace said a good pre-auction often help get a buyer one step closer to securing a property.
Wallace recently marketed a property at 69 Benson Road, in Remuera, with his wife Vicki and son Andrew. It sold under the hammer $2.75 million after just one week on the market.
The buyers’ pre-auction offer of $2.75 million, made after their first open home visit, blew the three other bidders at auction out of the water.
“They didn’t bid and we discussed it later. They said the opening bid was exceeded the maximum they were prepared to pay and it often happens,” he said.
He said properties were getting the most engagement and interest in their first week on the market, adding that vendor might not be missing out on much if they cut short their campaign after a viable pre-auction offer.
“People who are looking to buy in are all over it. They have their settings arranged and notifications on. When they find the property that ticks all the boxes they don’t wait and act immediately,” he said.
Fellow Bayleys agent David Nightingale said he was getting pre-auction offers on about 30 percent of the properties he’s marketing – strong ones, too.
One recent listing, a 1920s bungalow at 77 Speight Road, in St Heliers, sold a week after it was listed following a pre-auction offer of $2.275 million.
Nightingale, who marketed the home with colleague Elisabeth Hampson, said: “We had other people in the auction room but they were not in a position to compete with that bid.”
He believes buyers in the current market should sort out their finances and be prepared to act quickly, just in case someone puts in a pre-auction offer and the auction gets brought forward.
“In my 22 years I’ve been to several hundreds of auctions and what’s happening now is the best I’ve seen the market in terms of buyer activity.”
He advised vendors to think carefully before accepting or rejecting a pre-auction offer, as sometimes the first offer can be the best.
However, a buyer whose offer gets declined will likely still attend the auction and bid, Nightingale said. “Most of the time they’ll show up to the auction but they can disengage and look for alternatives, but in my experience the buy will continue to be interested for a couple of weeks,” he said.