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What happens when a Property is Passed in at Auctions?

Updated: Jun 18

Properties Passed in at auctions

As the property market cools, auction clearance rates are starting to fall in some areas. Frenzy biddings at auctions are becoming a rare sight. More properties are being left without a buyer at auctions. And when a property did not sell in the auction, it is known as being "passed in". What happens when a property was passed in at auctions?

Why did a property get passed in at auction?

The property get passed in at auction because the bidders at the auction could not or would not meet the reserve price for the property being auctioned. Or, in some cases, there simply isn't any bidders for the property at all.

That happens when agents wrongly recommended an auction process for a property sales campaign, when it should not be. Inexperience or rapidly changing market condition are the primary reasons for this. Throughout the sales campaign, the agent has to gauge the buyers interest and recommend changes to the campaign, or the auction risks a zero-attendance. But when you have an inexperienced agent selling the property for you, or an agent who simply wanted a quick sale, they may insist on having an auction, when the market dynamics does not support that. If you're selling your property, this is why it is important to know that every agent is different. Every agent has their own special skill sets which makes them effective for certain types of property. You need to choose your selling agent correctly. If you are unsure which agent is suitable for your property, our vendor advocacy service can help to select the agent and help you sell your property for more, by keeping your agent honest.

Or, it could be simply be an inexperienced or lazy sales agent hoping to play into the myth that properties sold post auctions always fetch a better price. I will discuss this myth later in this blog.

What happens when a property passes in at an Auction?

When the property gets passed in at an auction, it is not the end of the world. A few things can happen when the hammer falls (or did not fall in this case) at the auction, and the property is left without a buyer. First and foremost, the property is considered passed-in, and unsold. There are no buyers. But what happens next?

What happens next, depends on what happened during the auction, what the auction rules were, and why the property was being auctioned in the first place. In most cases, it can take one of these scenarios:

  1. Bidder with the highest bid usually gets the first right to negotiate with the vendor and agent.

  2. Property is put back on the market, often as a private sale.

  3. Property is taken off the market.

  4. Vendor decides to change the real estate sales agent and / or marketing strategy.

  5. Property is being dealt with by the mortgagee.

What is the First Right to Negotiate after an Auction?

The first right to negotiate means you will be the first to be invited to the negotiating table. The auctioneer will not invite anyone else, and you will be the only person negotiating with the sales agent and/or vendor, after the auction.

In most auctions (not all), the bidder with the highest unsuccessful bid will usually get the first opportunity to negotiate with the vendor and / or agent.

This negotiation phase is when the pressure sell starts. It is usually yourself against a team of experienced sales agents and negotiators working together against you, to "help you buy" that property. They are negotiating everyday, and they had been observing you, your body language, and your reactions throughout the auction, trying to gauge what you are willing to pay for the house. It is in the vendor's interests and the agent's interests that a deal is struck there and then, because properties sold at auctions are unconditional. It is a confirmed sale, and if your offer is accepted, you can't walk away. They are trained to squeeze every single cent from the bidder.

If you think the auction was pressurising, this stage will be at least 10 times more pressurising. All their attention is on you. Both the vendor and agents have the need to sell. The agents want their commission. The vendor wants to offload the property. And there you are, the buyer sitting alone in the room, with a team of experienced agents against you. They are trained and their role is to make you pay top dollar for the property. It will take as long as it is necessary to negotiate. It could be minutes or it could be hours.

And if the negotiation fails, the property is usually put back on the market, opened to all purchasers, if it is not taken off market.

How do you buy a property which was passed in at auction?

When you come across a property that had been passed in at an auction, contact the agent. Some sales agents may openly tell you it had been passed in at an earlier auction, while some agents may needs a bit of prompting before they disclose this. Good buyers agents would usually have the right tools and market informant to access these information. Sales agents know they cannot get away with lying to buyers agents, and so, most sales agents are usually upfront and honest with buyers agents. After all, no one wants to look silly, and be caught lying when the information is already known.

What do you need to know about the property that was passed in at auction?

The first obvious thing you need to determine is the price. You need to determine what were the vendors asking for? What was the reserve? Whatever this reserve was, it obviously was too high for the bidders who attended the auction on that day. But now that it is back in the open market, you need to be competing with them (most of the serious bidders are still interested), plus the other buyers which weren't at the auction. Not many agents will disclose the various auction price points, such as reserve price, etc, to the public though, as they know many buyers are simply shopping around. They will however, usually disclose these numbers to qualified serious buyers and other real estate professionals, like buyers advocates. They know buyers advocates like us, pre-qualify our clients, and we are only interested in properties which are within the client's budget and the buyers we are about to bring, are market-ready, and ready to buy.

Buyers Advocates "do not sit around" (in some agents words). We approach a property only when our clients are prepared to buy, and will buy if the price and conditions are right. Experienced sales agents know this. And the eager ones know the only thing preventing a sale is the right price. They are thus more ready to negotiate a deal.

Now, even if they do disclose the price points to the general public, they are unlikely to tell you the exact numbers. So, you will need to do your due diligence. You need to know how to determine the value of the property. This guide will show you how the value of a property is determined.

What do you need to do if you are interested in a property that was passed in?

If you are interested in a property that had been passed in at an auction, you should always treat this as a newly listed property. Redo your due diligence, even if you have already done your due diligence prior to the auction. There must be a reason why it DID NOT SELL during the auction. And you need to determine that. A few questions that needed answers include:

  1. Was the price too high?

  2. Was the vendor's expectations unrealistic?

  3. Was there something wrong with the property that you weren't aware of?

  4. What are the vendors expecting?

  5. What is a reasonable price for the property?

Will a property that got passed in at an auction sell at a lower price?

No. It is not necessarily true. It depends on who the bidders were during the auction. And what the reserved price was. If the bidders at the auction happened to be unrealistic under bidders, the vendors definitely will not want to accept the low-ball offers.

A townhouse in Melbourne South East suburb of Pakenham, with a price guide of $500k, was passed in at an auction which we attended last year. The highest bid of $470k during the auction did not meet the reserve price. Subsequent negotiations with the vendor and sales agents closed the sale at $538k. The sales agents definitely did a good job at negotiating for the vendor, as the price was way above market value. We initially shortlisted this property for a client, but we walked away from the purchase as we could not see value at that $538k price point.

Will a property that got passed in at an auction sell at a higher price?

No. Again, this is not necessarily true. It, again, depends on who the bidders are during the auction. And what the reserve price was. If the reserve price was too high for the property, bidders who had done their due diligence correctly, will definitely not want to pay that. Imagine overpaying for a property? You could be overpaying, sometimes, by half a million dollars.

A house which we bought in Melbourne inner-city suburb of Ashwood, was passed in at an auction, with a highest bid of around $2.75 million. It obviously did not meet the reserve price, and subsequent negotiations by the sales agents failed to secure the sale.

This house with a valuation of about $2.7M was subsequently re-listed for private sale, with a single price of $2.55M.

As buyers advocates acting on behalf of our client, we made our offer, negotiated, and bought this property for $2.45M. A massive $300k cheaper than the highest auction bid and a $100k savings from the post-auction list price. The sales agent subsequently revealed that the property had a reserve of "around $3M", during the auction. Ie, if there was a successful bidder, they would have to pay at least $3M, during the auction.

And we managed to bought it for a massive $500,000 savings post auction!

Advice for Property Buyers

With property auctions and making offers for a property, it is all about knowing what price to pay and when to walk away. Winning at property auctions is not always about successfully buying the property during the auction. You are way ahead of other property buyers when you know the market value. Know what the property is worth, and know when to walk away. You will definitely not want to pay more than an over-payer at any auctions.

If you're unsure of the market, engage a professional Melbourne based buyers advocates who knows the local area to do help buy it. In the second example in this blog, the client paid a relatively tiny $20,000 buyers' advocates fee and in return, it saved them a whopping $500,000 when you realise it had a auction reserve price of close to $3million.

Property Negotiation Service from Concierge Buyers Advocates

Our property negotiation service helps buyers understand the valuation of the property, and negotiate and buy the property for the best possible price. Our Negotiation Plan will help you to negotiate up to 3 properties or an discounted upgrade path to our full buying service, giving you the comfort and confidence that we will have your back.

More home and investment property buying news and tips here.


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