Method of Purchase – How To Get Those Contracts Exchanged
There are many selling and buying methods in Real Estate all of which can be pretty hair-raising for the novice.
The main two and most commonly known are Auction and Private Treaty. Here’s how to navigate your way through them to a successful purchase:
An auction is the most transparent way to buy and sell property and once that hammer drops, the property is sold – there is no cooling off period.
Theoretically an auction should be a priceless method of sale, which means the selling agent gives no market indication and leaves it to the buyers to work out what they’d be willing to pay. However, Real Estate Agents realise that this causes major frustration so they will often give a price guide, but all too often, that is all it is.
The Price Guide Through The Campaign
While the price guide should be based on comparable dwellings in the area, vendors and Real Estate Agents can get it wrong, so do your own research. However, it’s good to know that the OFT (Office Of Fair Trading) can come down very hard on Agents who get’s their price guide hugely wrong.
The Auction campaign usually runs for 3-weeks with the auction on the 4th week or for 4-weeks with the auction on the 5th week. This is considered to be enough time for potential buyers to do their due diligence such as strata reports, pest and building inspections, valuations and any local council research.
The campaign itself is usually slick, with beautiful photos taken with a wide angled lens, floor plan and other bits and pieces that the Real Estate Agent feels will draw buyers to their property.
The more buyers they attract, the more spirited the bidding will be on auction day.
The Real Estate Agent
By the time auction day comes along, a good Real Estate Agent will have built up some kind of relationship with the bidders and will often know their limits.
It is their job to put on a show and make everyone think that their property is the “hot property’ of the moment!
If you’re bidding and see the Agent whispering in the ear of a nodding competitor, don’t panic! It’s very likely that he or she is just saying, “nice day isn’t it?” or some other question that will elicit a “yes” response!
Don’t underestimate the Agent’s skill and the many hours of scripts they have rehearsed to get you to put your hand up again. Hold strong!
A good auctioneer is a true show person and worth his or her weight in gold. They know how to work a crowd, they know how to make you cringe and bid when you know the right thing to do is leave your hand in your pocket. Those smiles may be genuine but they are there for one purpose only - to sell the property.
With the Auctioneer and Real Estate Agent doing their best to whip people up into a frenzy, all too often frayed emotions and a sense of competitiveness will drive prices up and over market value. Don’t let that be your mistake.
Without a buyer there’s no auction, so stay in charge. Don’t worry so much about that poker face, don’t worry about bidding hard if this is the property you want but stick with your strategy. A killer bid at the end is fine but only if that had always been your plan.
If the top bid sits with you, no matter what the agent says, do not bid against yourself. Leave the property to pass in, meaning the vendor will have to negotiation with the highest bidder (you) or hold your nerve and wait for someone to bid against you.
If facing the Real Estate Agent and Auctioneer seems daunting, back yourself by employing a professional to bid on your behalf. A Buyers Agent will bid at auction, even if you found the property yourself.
A Dummy Bidder is someone working on behalf of the vendor to push up the price of the property and to keep the momentum of the auction going. They have no intention of buying and while Dummy Bidders are illegal, it’s worth keeping your eye out for them.
The reserve price is often set just before the auction. Once the auction commences, it’s important to work out if the property has reached the reserve and is therefore “on the market”. Once bidding exceeds that pre set figure, the property will sell at the fall of the hammer.
If reserve isn’t met, the vendor can either give the Auctioneer instructions to accept the last bid and sell at the auction or they can decide to negotiate with the highest bidder, usually in private but with the Real Estate Agent. If a price isn’t agreed on then, the campaign turns into a Private Treaty
A Private Treaty campaign looks the same as an Auction campaign with great photos, floor plan and advertisements placed on Real Estate Websites and often in the local press too – however, a Private Treaty has no time limit which can give a false sense of security. No time limit doesn’t mean that there won’t be an offer, acceptance and even exchange in a few weeks or even days!
Most Private Treaty Campaigns, have an asking price which is often the vendor’s dream price. It’s the buyer’s job to come in under this and try to negotiate somewhere in-between their offer and the asking price.
Unlike an Auction campaign, Private Treaty negations are anything but transparent and are usually done on the telephone. When a Real Estate Agent tells you that someone has come in with a higher offer, you have no choice but to believe them and then decide if you want to increase your offer.
However, a Private Treaty campaign usually offers you more time to think about your offer. When you are sure of the price you want to put forward, do it in writing: email is fine. This lets the agent know that you are serious and gives them something to take to the vendor.
If you’re really serious then turn up at the Real Estate Office with a signed contract, 66W and a signed, 10% deposit cheque and let the agent know that you are ready to exchange now! When a vendor sees the money on the table, they are far more likely to take it, sometimes, even if it’s a little lower than they initially wanted.
The Dutch Auction
While the term isn’t officially correct, what is commonly known as a “Dutch Auction” is when bids come in from a number of buyers to the Agent. The Agent then communicates these increasing offers to the other interested parties to see if they would like to exceed them or if they are “out”.
Many buyers dislike getting caught up in this system but if there are a few interested parties, there often is no choice.
While this can be stressful, again set yourself a limit and know when to put the ‘phone down! Also, don’t be scared of meeting with the Agent in their office – face to face communication can often feel clearer and more straightforward.
Offer And Acceptance
Hearing that your offer has been accepted is hugely exciting. However, as nothing is sold or guaranteed until contracts are exchanged, this is no time to sit back and celebrate! Instead, keep the pressure on your solicitor to get the contract ready and if need be, pick it up yourself to deliver it to the agent with cheque in hand. Far too many contracts have been sent in the post only for a higher offer to come in at the 11th hour.
This is when negotiations are finished and an offer has been accepted either verbally or in writing - maybe the contract is even on its way for exchange - when a higher offer comes in. As the Real Estate Agent, by law, has to take all offers to their vendors it is then up to them to decide whether to stick with the original offer or accept an extra $500, $5,000 or even $20,000. More often than not, the vendor’s instructions to their Agent are to accept the new offer. At this point, either the Dutch Auction starts again or the second offer becomes the winning offer.
Cooling Off Period
If you had found your dream property but were still waiting for finances to come through or to finish your due diligence, you could request to exchange with a 5-day cooling off period. While the property is legally off the market for those 5-days, when the time is up the buyer can walk away with only a .25% of the purchase price to pay as a penalty which is why very few vendors agree to this.
Off Market Purchases
An off market sale is the same as a Private Treaty sale but without the sales campaign. There are many more off market sales than most people would imagine – often someone will sell their property to a neighbour, friend or family member without taking it to market. However, the most common Off Market Sales are done through Buyer’s Agents who spend a large part of their working life keeping in touch with and building relationships with Real Estate Agents.
If you do stumble across an off market opportunity, paying for an independent valuation is the best way to come to an objective market price that everyone can feel comfortable with. Also, choose a solicitor or conveyancer who knows the property market well, or better still employ a Buyers Advocate to negotiate on your behalf.