A very narrow gap between gross rental yields and mortgage interest rates is a buy signal for investors.
Negotiate like a pro after a pass in at auction
Bidding at auctions is stressful enough, but what should a prospective buyer do if a property is passed in unsold? The most vital step is to ensure you hold the highest bid at pass in. The highest bidder wins first right to negotiate and this is an extremely powerful position. Fail to be the highest bidder and you’ve lost control of your destiny.
As the highest bidder expect to be invited into the property to negotiate. Lead the way, yes? Actually, no. Politely advise the agent that you will conduct your side of the negotiations from outside the property. Entering the property can restrict your ability to function at your best. If you need to discuss your offer with a companion or make a phone call, it is difficult to discuss the matter privately when the agent and vendor are close by.
You made the last offer, so the onus is now on the vendor to move off their reserve in order to begin negotiations. Wait for the agent to provide you the reserve. Once you receive the vendor’s reserve, do not feel you need to just accept it. In all likelihood what you are told will be higher than the true reserve – the minimum the vendor is willing to accept.
Start to apply some pressure. Ask the agent to justify the vendor’s reserve. Are there examples of genuinely comparable properties that have sold around this price? Also remind the agent that no one else who attended the auction was willing to pay what you offered, let alone the reserve.
Once the counter offers have started to flow, bring some negotiating leverage to bear. Assuming you have done a building inspection, raise issues about remedial work that is required.
Consider proposing new conditions; this sends the message that you aren’t beholden to the auction terms and that you are now on an equal footing. For example, you may propose a longer or shorter settlement period or, if you are an investor, request access to the property before settlement to show prospective tenants through the premises to minimise any loss of rent between settlement and securing a suitable tenant.
Ideally, at some point, you’ll agree a middle ground. If so, happy days. If you know in your heart that your negotiations have resulted in the current offer being fair and reasonable – accept it. Arguing over the last few thousand dollars is not worthwhile given how costly and time-consuming finding another suitable property can be.
Remain civil and courteous throughout the negotiations. Being aggressive can put the agent or vendor offside. If you know you’re prone to losing your patience or if you’re simply not one of life’s negotiators, bring an experienced negotiator with you to the auction.