How to Negotiate prior to auction

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As we move into the last 4 weekends before Christmas, the Melbourne property market clearance rate has taken it usual nose dive. I wrote about Pass Ins last week because you will see nearly twice as many Pass Ins over the next 4 weeks than any other time of the year. The clearance rate does not really show this as many of the properties that pass in will still sell on the day and therefore be labelled as “sold” at auction.

Over the weekend we saw the REIV clearance rate dip into the “60’s” for the first time this year on a 1000+ auction weekend. In fact there were 385 pass in’s and if you take into account those that sold after it would have likely been as high as 700+.

If you are in the market to buy at auction before Christmas, you had better get used to one on one negotiation. It is the normal question of a selling agent to ask what you think a place is worth. They are usually trying to pigeon hole where you will sit in the bidding stakes; but not at this time of the year. Selling agents are much more likely to do a deal prior to auction now than any other time of the year. And there are a few things you need to know.

Firstly the cooling off period plays a major role in pre-auction negotiations. Section 31 of the Sale of Land Act allows for a purchaser to “cool off” and withdraw from a contract within 3 clear business days after he/she has signed the contract. But it does not allow for this within 3 days before or 3 days after a publicly advertised auction for the sale of that land. So from Wednesday prior to the Saturday auction, there is no cooling off. BUT THERE IS ON TUESDAY!

No selling agent ever wants an offer on a Tuesday before auction. If he gets the deal then the purchaser can still pull out up to midnight on the Friday, leaving the agent no possible way to resurrect the auction. This means no agent is going to “play nice” in the week before the Wednesday prior to auction.

If you are going to start negotiating you need to understand that the number the agent is looking for needs to be, at a minimum, slightly higher than the agent believes he will comfortably get on Saturday at auction, and at or above the wish price of the vendor. Just remember the vendor will not take their lowest possible number prior to auction – why would anyone accept their worst case scenario without even trying the auction!

Your dilemma is this. If the vendor is going to accept your offer, it is usually because they are worried they may not do better on auction day and if a property passes in and only one person is interested – YOU, then you will be in the strongest negotiating position. Already most people here are thinking, If the agent doesn’t believe he will do better on Saturday, then why don’t I wait until then and manage a pass in? Because the agent will not know what everyone will bid to on the day. Auctions are a “pressure cooker” of emotions and quite often people get carried away. What you may have been easily about to purchase Wednesday night, may slip through your fingers on Saturday afternoon simply because somebody else makes an emotional decision to keep bidding to a lot higher than they intended to!

Rule 1. If you can purchase the property earlier than the auction for a fair price – then do it.
Rule 2. If you are going to lose – Lose early – there is no use waiting around for three weeks if you do not have enough to purchase the property.

If you are considering purchasing a property and you think you could use some advice, please feel free to call the office for a chat.

Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.