While you are finding the right property, you may notice that some properties are sold via auctions while some are sold via offering a price. Before going, it is important to understand the differences between these two and know how to deal with the agents in these two processes.
1. Private Treaty
Private Treaty – properties listed in the market with mentioning ‘make an offer’ or with a specific asking price. The buyers then make offers to the agent, who then presents all the offers to the seller.
In this process, you can make an offer by filling a 1-page offer form or a prepared contract. There are few key elements in that offer – price of the house, settlement dates, and conditions.
Making an offer can be very challenging as the offer is directly sent to the agent without knowing anything else. Unlike the auction, you will not know how many offers the agent has received nor how much of those offers. You also don’t know what is the price that the owner would accept. One thing for sure is the agent always represents the best interest of the seller. Generally, the agent will sell the house price as higher as they can.
It is quite common that after receiving your offer, the agent will tell you that he/she has got other offers with a better price. The problem is you would never know if it is true or not. Sometimes they may give you a guideline. But due to the market, the price can go higher as you may face competitors.
If there are many people come to the open house inspection, the chance of receiving offers will be more. In that case, try not to make the low-ball offer. You may get out of the game at the beginning. If it is in the heat market, the agent will only contact the high chance offer buyers to have the final bid. While you are waiting for the call from the agent, you may already are out of the game.
Do your own research about the house market price or make the offer that very close to your best offer.
If you really like the house and you know that there are many offers at the same time, the best way is to work out what is the highest price that you would offer and make that offer. Consider If you missed this house with this price, will you regret. And If you get the house with this price, will you be happy. How much you like this house.
However, the price is not the only element of the offer. That comes to the settlement date and the conditions.
- Settlement date
Normally the settlement date is 30 days after signing the contract. It also can vary based on your own circumstances or the seller’s circumstances. When your price has reached your ceiling or the maximum that you’d like to offer, you can play with this element to add your chance of getting the property.
- Other conditions
There are other conditions that you need to know:
- Building and pest: To make sure that there is construction damage or issue. Also, the house has not been damaged by termite. Make sure in your contract the subject to building and pest have clearly mentioned. You never know what has happened to the house. Normally the standard subject to building and pest time is 7 days in Australia. This means within 7 days, if there is any building and pest issue, your contract will not be valid any more.
- Finance: To make sure that the bank values the house the amount that you have offered and will borrow your money regarding that. It is very important to set the subject to fiance clause. In any case that you can’t get the loan or the bank de-evaluates your property, you can always cancel the contract based on this clasue. The standard time frame is 14 days.
- Due diligence: To make sure that the house does not have any loan left and all the expenses related to the bank and city council. E.g. the council rates and fees have been paid by the previous owner. This will be checked by your solicitor. Ensure you find a good solicitor.
- Other conditions: If you have any other specific condition, e.g. subject to selling your current home and then purchasing this house
Those conditions are also very important. They are designed to protect you by law. But again, you can also play around those conditions to add your chance of getting the property as the price is not the only factor. Do think about your situation and how much you like the house and then decide which of the conditions that you can play around. How much confident you have of waiving those conditions. For example, some cash buyers quite often waive subject to finance situation. This gives a better chance of getting the property.
The most important thing is to be comfortable with what you offer. So, you can make your offer subject to any of the above conditions to make sure that if the offer works, you are happy with the deal you made.
After making your offer, the agent will bring all the offers to the owner to make the decision. Sometimes more negotiations are required for the price or the conditions that you have made. This also depending on the market. But the key is to get all the information you have of the property and make an offer that close to the market price.
2. Auction
Although the auction process is quite stressful, you can make it sweet for yourself if you prepare for that. It will be good if you can attend a few auctions to get yourself familiar with the process. So that you know the whole situation. Before attending the auction, be well prepared as auction is unconditional. It means that if you win the auction, the house is yours. No subject to finance, subject to building and pest or cooling off period. There are a few things to be considered before you attend the auction:
- Building and pest: Make sure that you are aware of the structure of the house. some structural issue has to be identified by professionals. Also, be aware of whether the house has termite damage or not.
- Pre-approval: It is important to have your pre-approval and know your borrowing capacity. So, you will know how much is the maximum price that you can offer. Also, you can ask your broker/ lender to have a general idea about the value of that specific house. The banks usually have a price range for each property that can help you to know how much the property is valued by your lender/bank.
- House price: check the market price for the houses in the same area to have a better understanding of the real value of the house. It helps you to make better offers during the auction and you will notice if you are making higher offers than the market price during the auction. Most auctions are unconditional, which means even the bank evaluate the house with a lower price, and only pay for that much loan, you will have to pay for whatever you bid for.
To attend the auction, you need to have your valid phone ID card with you. If you are more than one person buying the house (e.g. couples), your both IDs are required. After presenting your ID, you will be given a number. You will use this number to make your offer during the auction.
During the auction
The most important thing is to be relaxed. When the auction starts, the auctioneer will first explain the general rules about the auction. Then he/she will emphasis on the key selling points of the house to make everyone excited to bid. Then actual bids start!
Auctioneer will ask about the initial offer and who wants to make the first offer. You don’t need to make any initial offer if you don’t have much idea about the price or if you don’t feel comfortable. Always remember, any offer that you make could be the final offer, which means the house will be yours. If you want to make the initial offer, there is nothing wrong of starting low. Don’t be afraid of starting a very low price.
During the auction process, the agents will always come to you to encourage you bidding high. Again, be on your own pace and try not to be too much influenced by the agent. Don’t be stressed. Relax and think about the values you have in your mind. It is important not to get excited and if you want to beat the other offers, do it wisely. Always remind yourself about your budget and the maximum amount you can go for.
When the auction becomes quiet and no more newer offers, auctioneer and real estate agents will talk to the owner(s) to see if the owner is happy with the last offered price. Normally before auction, owner(s) will provide a price that they would like to sell. This price is totally confidential and is called a reserved price. It means that if no one offers above the reserve price, the owner will not accept the lower prices and the auction will pass in. If the owner is happy with the final offered price, he/she will accept it and the auctioneer will count till 3 to make sure that no one else wants to make a higher price. When the auctioneer says number 3 and put the hammer down, it means the house is sold to the one who offered the highest price.
Sometimes during the auction, after the auctioneer and agents talk to the owner, you may see that the auctioneer increases the price without anyone offering that value. It means that the auctioneer knows the seller’s reserve price and try to make the offered value close to that and make the people attending the auction offer a higher one. If you are happy with the highest price and you think you can make a higher one, make your offer. Otherwise, if you don’t feel comfortable about the price, you don’t need to make any other offers. Try not to be tempted if you don’t feel happy with the price.
If the auction is successful, the house is sold to the one who made the highest offer without being able to add any conditions. If an auction is passed in, you can still make an offer by filling the offer form after the auction. Just fill the offer form, talk to the agent, and let them know about your offer. Offers are better to be made in writing.
