COVID-19 certainly shook up Melbourne’s property market, forcing vendors, buyers and agents alike to adapt to less conventional methods.
That includes online auctions, interrupted sales campaigns and restricted property inspection conditions.
Another trend noticed throughout the uncertainty of the pandemic has been the increased popularity of expressions of interest campaigns.
The expressions of interest (EOI) method of sale sees vendors invite buyers to make an offer to purchase their property, by a specified time and date.
Prospective buyers submit their offer over the course of the campaign – conventionally four weeks. The vendor can then accept the best offer, or if none meet expectations, the property can be placed back on the market.
They offer a number of benefits for vendors in unpredictable market situations.
Normally expressions of interest are reserved for higher priced properties, which are unique in terms of their market value. This gives vendors a greater level of control, particularly over the differing opinions of value. It also allows vendors to transfer to a private sale or online auction, if that suits the changing tone of a campaign.
Expressions of interest also allow for greater flexibility regarding times and dates, which in uncertain times is a valuable attribute.
While expressions of interest can provide vendors with greater surety, they can be daunting for many buyers unfamiliar with the process.
There’s an array of factors that buyers must be aware of before entering an expressions of interest campaign.
Firstly, not real estate agents handle expressions of interest campaigns in the same way.
This includes real estate agents within the same agency. That means buyers must approach each expressions of interest campaign on a case by case basis.
Buyers must seek clear instructions on how the process is going to play out.
Agents who handle expressions of interest campaigns on a regular basis often have an information sheet setting out what’s required throughout the process. This can be a great help to buyers, providing greater transparency and helps to devise strategies.
However, some agents will provide less information about the process, so it’s important to have clarity on some key points to ensure you’re able to put your best foot forward.
A lot of these points are also relevant to private sales and auctions, but in an expressions of interest campaign it’s important they are addressed before you begin the process.
Ask for a copy of the contract: If a contract is not yet available, it means a formal offer can’t be secured. It may mean the vendor still has a number of matters to finalise before they are able to lock in a potential offer. It’s worth seeking clarity from the agent regarding the timeline of the process.
Clarity on sales conditions: What are the conditions within the contract and is there any room for flexibility? Are you able to buy the property subject to a building inspection or does it need to be carried out beforehand? Is there any information in the contract of sale that’s missing? Do alterations need to be made to onerous clauses, which have been identified by your solicitor?
Level of competition: Having an idea of the number of people you are competing against can help shape your approach to the campaign. The agent is not obligated to disclose this, but any information you can garner is valuable.
Vendor expectations: An expressions of interest quote is different from an auction quote. Is it likely to go beyond the quote range – which is quite regularly the case in an auction – or is it likely to sit within a quoted range? While you might not receive a definitive figure, probing can help draw out a more defined price range.
Settlement terms: Understanding a vendor’s settlement timeframe preferences can help you shape your offer accordingly, to ensure you don’t miss out on a property due to discordant timeframes. Apart from price, settlement terms are often the next highest priority for vendors.
Campaign timeframe: This is a consideration specific to expressions of interest. Does the campaign conclusion date need to be reached before the vendor accepts an offer? Sometimes vendors are willing to accept an offer early if it meets their expectations, while others will hold off for the full duration of the campaign and give everyone a chance to put an offer forward. This will help you shape your strategy surrounding the means and timing of your offer.
The offer process: How many opportunities do you have as a buyer to make an offer? Is it a one-chance opportunity with a best and final offer? Or will the agent give you the chance to make a higher offer if you’re sitting marginally below your competition? It’s important from a strategic perspective to gain a clear understanding of how this dynamic is going to play out. Will offers be disclosed to other parties, so buyers can put forward offers based on that information? Often if there’s multiple parties at a similar level, agents will transfer the process to an auction format to provide greater transparency, enabling buyers to see who they’re bidding against.
Offer specifications: Some agents are happy to take an offer via phone call or text, while others require a more formal process via email. This can be a generic email simply stating the figure, deposit, settlement and any special conditions. But an offer may need to be submitted on a specific form. Often agents will have a template that needs to be completed, which can then be transferred onto a contract. Others will actually require you to draw it up on the contract yourself. If that’s a little complicated, the agent can help with the process, but engaging a professional working on your behalf is often advisable.
Setting your strategy: Once you understand the rules of engagement, you are in a position to plan your strategy. Are you going to submit your offer early, or hold back until the final stage of the campaign? Going early may catch other buyers off guard, who may still be carrying out due diligence. Your offer may be deemed acceptable by a vendor who doesn’t want to draw out the process any longer than required.
Do you submit your highest and best on the first shot? This might suit a buyer with a limited budget, who feels they’ll be out bidded in a longer campaign or auction. Conversely, do you submit an offer, but keep money up your sleeve, if there’s an opportunity to put in a second offer?
Seeking advice: If you’re still feeling a little unsure or trepidatious about the process it may be worth seeking support. This could be from a trusted friend or family member, or by way of an advocate or solicitor. Extra support can help bring greater knowledge and expertise to the situation, but also provide an objective perspective to ensure you remain cool headed and strategic throughout what can be a stressful and sometimes emotional process.
Take home message
As is always the case with good property investment decisions, strong preparation is key.
Buyers who take the time to understand the particular dynamics at play before they enter into an expressions of interest process, give themselves an edge against their competitors.
And even the most marginal of edges can be the difference between winning or losing out on a major investment opportunity.