Melbourne Auctions: What to do if the property is passed in to you

15.03.18 | Marc Barlow | Resources

Melbourne Auctions: What to do if the property is passed in to you

When a house is passed in at an auction, a whole new phase starts. Here’s what it all means, and how to be prepared for the negotiations that follow.

What does ‘passed in’ mean?

At an auction, one of three things typically happens:

  1. At least one person bids on the property (usually there are a few people bidding against each other), and someone bids enough to purchase the property. Sold! Simple.
  2. There are no bids from the public. There might be a ‘vendor bid’ to kick things off, but if nobody bids, the property is not sold.
  3. Bidding takes place, but it doesn’t reach the vendor’s reserve price (the lowest amount the vendor will accept to sell the property). In this case, the property is ‘passed in’ and the person with the final and highest bid gets the exclusive right to negotiate with the vendor.

Now things really get interesting! Contact Us today and find out how we can guide you through the entire process.

Where do negotiations take place?

Firstly, if the property is passed in to you, you don’t have to negotiate. You can just walk away, in which case the next highest bidder gets to negotiate. Also, you can just stick to your final bid. In theory, an auction is the way the market sets a value for the property, so if you don’t want to spend more (or you’ve reached your limit), nobody’s forcing you to increase your bid.

Usually the agent will invite you inside. Some people prefer to stay outside; it may reduce the pressure you feel to accept a counter offer, and might give you a psychological edge to stay in neutral territory. While you’re outside, you can also see whether there are other keen buyers ready to swoop if you don’t end up buying the property. If the street clears out, this gives you an advantage; if the vendor wants to sell, it’s to you or nobody.

On the flip side, going inside might give you the privacy you need to discuss things with your partner, call a friend (or your broker!), and otherwise have some quiet time to think things through. Either way, it’s rare that you’ll actually be talking to the vendor; the agent usually goes forward and back, delivering messages and trying to finalise a sale at the highest price.

How to negotiate

You probably already have a fair idea about what the property is worth. And hopefully you know what you can borrow, and have set yourself a bidding limit. Don’t get carried away by emotions or feel pressured. You made those decisions for a reason. Has anything changed? If not, stick to your limits.

Take your time. Remember the vendor is the one under real pressure here. Do they want to sell? Do they need to sell? Will they be prepared to go through the hassle and expense of re-listing their house? Also, the agent needs the sale to get their commission: They want the highest price, but will be even more desperate just to land a sale. You hold most of the cards.

The price is right

The agent will probably tell you the amount the vendor wants (and if they don’t, there’s no harm asking). This is just the start of the negotiation; the final price will be somewhere between your bid and their amount. If you have room to move on the price, offering a relatively small increase – say $10,000 – will show that you’re negotiating in good faith. Keep your upper limit to yourself though, or that’s exactly what you’ll end up paying.

In the end, always be prepared to walk away. The agent and vendor want to keep negotiating with you, but if you offer a final price, make it clear that it’s genuinely your final offer.

So stay strong, keep your emotions in check, and remember that a thousand dollars here or there won’t make a difference in the long term if it means buying the house of your dreams.

Talk to your broker

In most cases, your bank or other lender will assess the value of the property before finally approving your loan. In rare cases, they may not lend you the full amount if you have paid more than the place is worth. Your broker can help you understand the likely market value of a property prior to the auction, and can offer more tips and insider advice about negotiating a final price.