1st home buyer placing offer pre auction

Hi all,

We are considering putting in an offer on a property that is pre auction that suits all of our criteria.
We have saved 30k deposit, +20k genuine savings in the form of a rental ledger, and will be receiving a 30k gift from family. Total will be 60k deposit (50k gen savings)

Our offer will be roughly 650k, and according to our broker we can possibly service a 750k loan. We are sitting around the 95 LVR (I believe) after taking into account fees etc.

Would it be a bad idea to submit an offer pre auction?

 

Will your deposit change if you waited until the auction?

 

Doing that will assist them to use your bid to create a reserve - for you to bid to. You could later be bidding against yourself. Media reports are starting to talk down some auction results and prices too. This may encourage an apprehensive vendor to consider early offers. You would need to be pretty clear on finance conditions. A vendor and their agent may not be thrilled with a 95% LVR offer compared to a cash buyer or lower LVR offer for example.

 

Not particularly, we think we'll possibly miss out or get smoked at an auction with emotional buyers

 

No point in making a pre-auction offer if you're hoping to get a cheaper deal earlier. All you're doing is helping the vendors set their reserve.

Markets are almost universally hot. The only way a pre-auction offer works in this environment is if you 'must have' the property and are willing to make a very generous offer just to secure it. A better tactic would be to try and play it very cool and hope you get lucky at the auction.

 

Would you advise against bidding at auction giving our lending circumstances? For instance if the valuation is lower than the sold value?

 

Unlikely that you'll have a valuation problem, they're extremely rare with auctions and in every case I can point to something unusual about the property.

Going into this needing a 95% lend represents a big risk though and you can't have a finance clause at auction. At least make sure you've got a pre-approval and a backup plan.

 

Thanks for you help. Can you please elaborate on this comment?

 

Does going for 95% at auction make it any more risky than say a lower lvr, as its unconditional?

 

Requiring a 95% lend is inherantly risky because there are very few lenders that will lend to 95% and even then they're looking for reasons not too. If the lender needs to sell the property there is zero real equity in the property to act as a buffer against selling costs and debt recovery. The lender would likely come out of this with a loss.

Needless to say I'm not a big fan of 95% loans, if you can find a way to get to 90% or lower, it will put you in a much better position.

By 'unusual property' my best example is a client purchased on "The Block" reality TV show. The first valuer felt the property was singificnatly over hyped and marketted. The result was about 20% below the purchase price. Fortunately I did a lot of research and was able to get it over the line with an alternative lender (and valuer).

I can count on one hand the number of auction valuations that have been short (I've been at this for almost 20 years). Every one of them was a fairly extreme example.