Win the bidding war with your ‘best and final offer’

If you’ve been gearing up for a face-to-face bidding war at a public auction, this request might catch you off guard. Here’s how to play your cards right. Jessica Golding reports.

If you’re already imagining your future in a new home, you won’t want to give it up without a fight. But in a competitive market, there are a number of ways a bidding process could play out. A selling agent may opt to take their chances at a public auction or, alternatively, they could cut to the chase and ask for ‘‘best and final offers’’ by a set time, winner takes all.

Often, people prepare themselves for a face-toface bidding war or an open negotiation, so they’re unprepared for this request when it arrives. ‘‘Generally, we hate it,’’ says buyers’ advocate Cate Bakos. ‘‘We hate the lack of transparency.

‘‘[Buyers] will be really fearful of paying too much, nobody wants to beat the next person by $50,000. They’ll also be really fearful of missing out.’’

When is this method used?

While best and final offers are commonly requested in expression of interest (EOI) campaigns, when the invitation is made in the leadup to an auction or in the course of a private sale, it generally indicates that the seller has received an offer they are willing to accept, says Bakos.

While it’s possible the agent is bluffing, Bakos says the public nature of an auction campaign means it’s unlikely in that scenario.

This format could also indicate that the seller or real estate agent is looking for a quick sale, or getting cold feet about going to auction.

Agent Mark Foy says while he typically prefers to follow through when he has an auction scheduled, he will consider selling before when there is a buyer who has ‘‘separated themselves from the competition’’.

When this happens, he will give interested parties a chance to submit their best offers before closing the sale.

‘‘We don’t disclose the offer,’’ Foy says. ‘‘If it’s higher, then you do the deal, if it’s lower, then you won’t.’’

How to set a budget for a ‘best and final offer’

In a blind-auction scenario, settling on a final figure can be daunting.

‘‘A lot of people lack confidence in making a decision because they are not clear about their property strategy,’’ says David Johnston, managing director of Property Planning Australia.

Johnston suggests buyers first consider their long-term goals and existing budget, then do the research to understand the property’s true market value.

Rather than relying on what the agent is telling them, Bakos recommends buyers review recent sales in the same suburb, on the same quality of street, with a similar size and orientation to the property they are looking at, to get a sense of the value.

‘‘They have to know what the property is worth in today’s market,’’ she says.

Johnston says it’s also important to consider the rarity of what you’re looking for, which may require applying an ‘‘emotional premium’’.

‘‘If you know that only one property that meets your needs is coming up every two months and you’re in a rising market, those are important factors to consider,’’ he says.

‘‘Use odd numbers in your offer,’’ he adds. ‘‘A lot of people will finish on zeros or fives, so just tip yourself above.’’

While you may be hesitant to offer top dollar when the demand for a property is unclear, Bakos says that, to be successful the offer ultimately needs to be competitive.

‘‘You need to be confident that you’re paying a fair price with a slight edge to it.’’

If you’re confident that the property is worth more than the highest amount you can offer, Bakos says buyers should ‘‘go for gold and put everything on the table’’.

‘‘If you’re successful, you’ve done really well and if you’re not, you’ve got no regrets, you’ve given it a crack.’’

Tips for sweetening the deal

Consider what else you can offer beyond the highest price to set yourself apart.

Bakos recommends finding out as much as possible about the seller’s preferences from the real estate agent.

‘‘Ask them to give you a friendly hint, because they might,’’ she said.

Making the offer unconditional, requesting fewer changes to the contract or agreeing on a shorter settlement period could all give you advantage over your competition, says Foy.

Potential pitfalls

While it may be tempting to go all in when your dream home is at stake, overpaying and facing a valuation shortfall could be disastrous.

‘‘If the amount the bank is willing to lend you isn’t enough to finance the property then you’ve put yourself in a precarious position where you might default on the property and lose your 10 per cent,’’ says Bakos.

Buyers should also be aware of any conditions attached to the sale.

For example, if an offer is accepted three days either side of a public auction, usually there is no cooling-off period, depending on regulations.

At the end of the day, buyers should offer what they’re happy to pay, says Johnston.

‘‘Don’t second-guess yourself.’’

If you’re confident that the property is worth more than the highest amount you can offer, buyers should go for gold and put everything on the table.