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Should I make a pre auction offer?

Should I make a pre auction offer?
June 28, 2017 David Morrell
pre auction offer

Should I make a pre auction offer?

One of the most effective strategies I have used is to upset an auction before it actually takes place with a pre auction offer.

Here is how to make a pre-auction offer:

  1. Write to the vendor
  2. Offer more than the estimate
  3. Decline to pay until two days after the auction

Now put yourself in the owner’s shoes.  Will the owner take $100,000 or perhaps $200,000 less at the auction than they believe they might receive on Monday?

My clients wanted to buy a classic bluestone period home that was being auctioned on Saturday.  However, there was a problem.  They had sold their company to a public company and it was not being announced until Monday, so they couldn’t guarantee they would have the funds to buy the property.  However, they loved the property and wanted to buy it at all costs.  I suggested that they write to the owners indicating how much they liked the property, saying they were unable to attend Saturday’s auction, and that their level of interest was at about $4.5 million.  If by some chance the property was passed in, would the owners please call them on Monday.

This personal note to the owners basically disrupted the auction at which there was genuine buyer interest.  But this interest stopped at $4 million, which was about what the property was worth.  Of course, the selling agents wanted the owners to sell at $4 million, but the owners had a personal letter in their hands saying they could get $4.5 million on Monday.  The property was passed in at $4 million with the genuine buyers being extremely vexed that the owners wouldn’t listen to their offers and making veiled threats to the agents.  After some further negotiation my clients bought the property at a price that was satisfactory to them.

Get the owner to commit first

Often you can control the process of the auction by pulling the vendor’s strings.  For example, if you want to buy a property prior to an auction, don’t make an offer.  Instead, get the owner to put a figure on it for what he would sell to you prior to auction; that way you’re not just chasing an invisible bar upwards.

We were asked to purchase a block of land in a holiday resort.  It had a wonderful view, and the auction was scheduled to be in the middle of the Christmas period.  Our client was desperate to secure the property before it had been advertised and the general public made aware that the opportunity to purchase existed.  We told the agent that we wanted to make an offer and we wanted to buy it, but we needed a figure from the owner to secure it.  They were quoting $600,000 plus, and given the heat in the market for block of land with superb views, it could have gone for as high as $900,000.  After much haggling with the agent, we finally got a chance to speak with the owner, who stated that he had $600,000 on the agent’s authority and if we were to offer $650,000 we could secure it prior to the auction, which of course we did.  The key point to remember is that we had not made an offer.  We go the owner to make an offer to us and we ultimately made the decision about whether or not to go ahead with the purchase.

– David Morrell



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