While passing in a property ends the formal auction, it’s just the beginning of a fast and furious new phase. Here’s how to navigate the negotiations and remain in control.
‘Passed in’ explained
If all goes well, most auctions are fairly predictable. Either bidding happens, the property meets the vendor’s reserve price, and the place is sold, or the property doesn’t meet the reserve (i.e. the bids are too low or there have been no bids) and doesn’t sell.
If the property doesn’t sell, the person who has the highest bid at the time the auctioneer calls it quits then has the right to negotiate with the owner. The property has been ‘passed in’ to this person. If they don’t want to negotiate for some reason, they can just walk away. In this case, the next-highest bidder gets a go. And a whole new game begins.
Negotiation set up
Typically, negotiations happen inside the property, with the vendor in anther room or on the phone somewhere else. It’s very unlikely you’ll actually haggle with the owner: estate agents will scurry between the two of you, trying to squeeze every last dollar out of you.
Some people like to try to stay outside, hoping that remaining on the street will give them an advantage when trying to reach the lowest price possible (and also letting them know whether other unsuccessful bidders are hanging around ready to step in if your attempts fall through. If nobody loiters, you know you have one thing in your favour: if the vendor wants to sell there and then, it’ll be to you).
Other people like the privacy of going inside: it’s more comfortable to make phone calls or discuss with your partner in private.
The idea of auctions is that the market speaks: the highest bid is exactly what the property is worth. In the real world, this isn’t always the case. If a blizzard keeps bidders away or the seller has unrealistic expectations, the biding may not result in a sale. When a property is passed in, it’s because the seller wants to get more money – they don’t think the ‘real’ value of the property has been reached.
As a buyer, you’ll have checked the market, looked at recent results for similar places, and should have set yourself a limit. If none of the factors that led you to this limit have changed, don’t get swept up in the moment. If the property is selling at a price that’s too high, walk away.
In these situations, agents are expert at making you feel pressured. Remember that it’s their commission and the vendor’s desire to sell that are really under pressure. Do they really want to re-list their property and go through the hassle of open houses again? You have most of the power.
The price is right
You can try to stick to your final bid (and if it’s at your limit, you probably should), and be prepared to walk away if a deal isn’t done. Usually, however, negotiations land somewhere between what the vendor wants and what you’ve bid. Sometimes it can work to hold out for a while, then offer a small increase to show that you’re negotiating in good faith.
The bottom line is that you can walk away at any time. Try not to get too caught up in the moment. There’s no rush. On the other hand – as long as you can access the funds – paying an extra $1000 won’t make a noticeable difference over the life of the loan, so don’t dig your heels in out of pride.
Talk to us
Get in touch with us before the auction. We can access reports on the property you’re interested in and talk to you about getting pre-approval on a loan so you know exactly what your limit is.
We can also share other tips for biding at auctions. Contact Mortgage Broker Group today.