It’s a sensitive time in the property market at the moment, and as a result we’re seeing a higher rate of properties pass in at auction. If you’re bidding on a property at auction, a pass in may throw you off a little – but if handled well, it can work in your favour. Here are some things to keep in mind.

 

What happens when a property is ‘passed in’ at auction?

When a property up for auction is ‘passed in’, this means the top bid hasn’t met the vendor’s expectations (i.e. it isn’t as high as they were hoping for). If this happens, the highest bidder will be asked to step inside to carry out private negotiations with the vendor’s real estate agent. This may result in the bidder offering more money, the vendor accepting less money, or more often than not, the two parties meeting somewhere in the middle.

Being the top bidder when an auction is passed in doesn’t necessarily mean you’ll end up being the purchaser. What it will do is secure you the first right to negotiate with the vendor at their reserve price. Walking into a property after an auction has passed in can be daunting for a typical buyer.

What normally happens is that you’ll be asked to sit down in one of the rooms in the house, while the vendors (owners) of the property will be at the other end of the house, or sometimes upstairs while you are downstairs.

The agent’s main aim here is to negotiate with the buyer according to the vendor’s reserve price. This is the number one outcome they are looking to achieve, as the vendor will be paying them a percentage of the sale price. If they deliver the vendor’s reserve price they’ll be paid anywhere from 1.5–3% of the property’s sale price.

As a buyer, you’re in a position of strength here. You may really love the property, and look at it as a way to secure a family home that you’ll live in for over ten years. In this situation, our advice if you’re very close to the reserve price is to increase your offer a little, while asking the agent to see if the vendor will come down on their price a little.

During the heat of a negotiation, we’ve seen many buyers forget that they can ask the vendor to come down in price. They make the mistake of walking in and paying the asking price without even negotiating. A professional buyer’s advocate or buyer’s agent in this instance can save you thousands of dollars by conducting fair negotiations.

Another result is that the vendor will decide to keep the property on the market and look for another interested buyer. Only allow this to happen if you feel the vendor’s reserve is unrealistic and they’re wanting prices from 2016 or early 2017, which are not comparable anymore.

 

What can buyers do to get the best outcome?

It can be exciting and nerve-wracking to engage in negotiations over a property you really want. As the highest bidder, you’re in a particularly advantageous position to negotiate a fair price.

It’s important not to get too excited and end up bidding against yourself. In a declining market, as we’re seeing at the moment, comparable sales are no longer comparable. Just because the property down the road fetched $100k more a few months ago, doesn’t mean the property you’re bidding for now should go for the same amount.

Go into negotiations with your price limit in mind. If you’re absolutely in love with the property, you may want to offer a little higher than this, but remember that you’re only bidding on yourself if the auction is passed in. You’re the top bidder, and you’re the vendor’s best chance at selling the property at this stage.

Be strategic

If you’re a couple, you’re in a particularly strong position when entering negotiations. You have the opportunity to use a ‘good cop, bad cop’ technique. One of you can be emphasising how much you love the place, while the other can act conservatively and display concern about price. The vendor’s agent will be trying to play to both roles – they want you to pay the price the vendor wants, but they also don’t want to lose you altogether.

Get expert help

Agent negotiations can be stressful and you may feel pressured to bid higher than you want to. It can be difficult to know where to draw the line.

A knowledgeable buyer’s advocate like Industry Insider can help you achieve the best outcome, without blowing your budget out. We know how to value properties in a declining market based on things like demand, time of year, the agent selling the property, the vendor’s motivations and the changing bank landscape. We’ll also be upfront with you about what you can achieve, and if it’s worth offering more money to secure the property of your dreams, or whether you’re better off walking away and finding something better.

The property market is skewed towards the buyer’s advantage at the moment. If you want help navigating your next property purchase, reach out to our expert team on 1300 181 997.