Posted on 03 FEB
Q: I’m going to auction my home for sale later this year and I’ve been seeing lots of houses being sold before auction. How does a pre-auction sale work and is it a good thing to bring the auction forward? Thanks, Lily W.
A: No problem Lily. When a property is being marketed for auction, provided the agent has advertised it as “unless sold prior (USP) the agent can present a pre-auction offer to the vendor. Once an offer is presented the vendor has three options: (1) Accept the offer, sign it and it’s a done deal (2) say ‘no thank you, we will wait for the auction date’ or (3) say “yes that’s enough for me to sell’ and bring the auction forward. In this case (#3) the reserve is set at the offer figure and the auction starts with that as the opening bid, and if no higher bids are received then the property is sold at the offered price. Of course other buyers can still bid and the property will then sell to the highest bidder.
In our opinion, 99% of the time pre-auction offers only benefit the buyer. And what are those benefits? Firstly, bringing the auction forward means that less potential buyers will view the property (one or two weeks fewer open homes) so the buyer is cutting down on competition. Secondly, most pre-auction offers are not at the maximum the buyer is willing to pay. We have seen many auctions brought-forward where there has been additional bidding and the buyer that made the original offer has bid many thousands of dollars more than their first offer.
The only up-side for the seller is that they get sold earlier, and they don’t have to go through the stress of an auction where they don’t know if they are sold until the day. In our experience most vendors ultimately care more about getting a good price.
Some real estate companies have a policy to automatically bring the auction forward if an acceptable offer is received prior, but we think that it should be the vendor’s choice to decide how they want to handle the offer – it’s their property after all! We are always willing to give advice of course, but that is all it is – advice. Remember that the selling/listing agent works for the vendor, not the buyers, so always bear that in mind when talking to the agent who is selling the property.