Fear of missing out is driving Melbourne homebuyers to stump up “ridiculous” amounts of cash to snap up homes before auction.
But experts warn it’s a strategy fraught with risk and could lead to buyers paying too much.
Wakelin Property Advisory director Jarrod McCabe said he’d seen more buyers offering big bucks to secure a home before auction in Melbourne’s red hot post-lockdown market.
CoreLogic figures show sales prior to auction peaked in mid February, with almost half of properties sold before making it under the hammer.
They also hit 63.6 per cent in the final week of March last year when the first lockdown was announced, and 51 per cent in July about the time of the second lockdown.
An analysis of realestate.com.au data found 86 per cent of homes listed for auction last month sold — the highest clearance rate since the start of the pandemic.
CoreLogic commercial property research analyst Eliza Owen said pre-auction sales jumped each time a lockdown was announced.
“The spike in properties sold prior to auction occurs over recent periods of restrictions we’ve seen introduced in Melbourne that occur due to COVID-19,” Ms Owen said.
The ban on gatherings and halt on house inspections prompted agents to actively seek buyers before the big day, she said.
But Mr McCabe said he was seeing more buyers frustrated by low listings dig deep to make an offer — often unsuccessfully — to try to secure a home before it went under the hammer.
Vendors were often open to pre-auction bids, particularly if the price and the settlement conditions were right.
But he said buyers risked “losing control” of the sale process and could end up paying more than they needed to buy the home.
“You definitely see in a rising market that buyers start to get a little edgy and FOMO (fear of missing out) starts to kick in. You really see it in buyers who have missed out two or three times and are getting frustrated,” Mr McCabe said.
“We’re always a little hesitant to put offers before auctions because as a buyer you can lose control. If you go to an auction you get to control how often you bid, how much you bid. It gives you the transparency that you’re not paying tens of thousands of dollars more than what the market is willing (to pay for that home).”
Miriam Sandkuhler, chief executive and property advocate at Property Mavens, said less vendors were selling before auction now because they knew low listings and big buyer demand meant market conditions were skewed in their favour.
Making an offer before auction could work for buyers who had no wriggle room to go over their budget on auction day and were worried about being outbid.
She said one of the main reasons a property sold before auction was if the vendor wanted a quick sale to finalise a divorce settlement, offload a deceased estate or to avoid the stress of auction day and open for inspections.
The other reason came down to the buyer simply paying too much, she said.
“Properties sell before auction if the vendor’s receptive to an offer before auction and if the buyer’s willing to pay a ridiculous price,” Ms Sandkuhler said.
“Usually it’s an emotional reason to sell before auction or quite frankly someone paying stupid money.”
Mr McCabe said vendors benefited from a pre-auction offer because it gave them certainty about the sale price of a home, while at auction the sale price could fall higher or lower.
But he said current market conditions meant it was a good idea for vendors to consider staying the course and taking the house to auction.
“Vendors who don’t need to sell would be wise to let the auction play out,” he said.
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FAMILY HOME TO HIT MARKET
When it comes to selling before auction, Tien Nguyen said he’ll be guided by professional advice.
The young dad is helping his mum, Kim, sell his childhood family home at 146 Mills Street, Altona North, and he said he trusted their agent, Ben Nguyen of Create Real Estate, to help them make the call on the best course of action.
“My mum wanted to keep the house so that we could build a home and have one house each. But now my grandmother is overseas and she’s sick and my mum is going to fly back to Vietnam to be with her,” Mr Nguyen said.
“If someone offers a high price, obviously we would take the offer before auction.”
Mr Nguyen said it was sad to see the home go and he’d miss their neighbours, who his family had grown close with.
But he said the new buyers would love the area, which had good access to schools and shops.
“We really love the area, we love the neighbours. The area is very peaceful, there’s no crime whatsoever.”
The family’s home will hit the market in the next few weeks, with an auction date to be set for late April. A price guide is yet to be set.
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