When a property passes in…

Our Melbourne property market has been going strong, particuluarly in the housing market throughout the inner and middle ring suburbs for some time now. Unprecedented low interest rates, strong demand, stock shortage and the rising popularity of inner-ring urban living for young professionals and downsizers alike have been drivers for this growth.

When auction stock clearance levels are high, the rate of ‘pass-ins’ is lower, but even in a buoyant market, auction properties can pass in.

A pass-in occurs when the bidding has fallen short of the Vendor’s reserve. If there are no genuine bids from the crowd, the auctioneer will pass the property in on a Vendor bid (a bid placed by the auctioneer on behalf of the Vendor). When this takes place, the price tag will be set and the sale will revert to a Private Sale. Any buyer who can meet the sale price will be eligible to purchase the property.

When genuine bids are placed though, the auctioneer will pass the property in to the highest bidder. That bidder will be given an opportunity to have exclusive right to purchase the property at the Vendor’s reserve price (or at a level negotiated and mutually agreed).

Reasons for property pass-ins vary, and sometimes the reasons can be hard to identify. 

And sometimes there is no reason. Just a case of luck.

Some of the identifiable reasons can include;

• limited interest in the property based on the advertised price
• limited interest in the property based on difficulty financing this particular type of property
• limited interest in the property based on it’s quirks (ie. diminished number of suited buyers)
• difficulty gaining enough buyer access to the property
• unreasonable reserve on the day
• increased number of competing sale properties in the same genre during the campaign
• ‘key’ buyers alternating their purchase decision on the eve of the auction
• buyers who feel unwilling to participate in the auction process

Good properties don’t always sell under the hammer, and bad properties don’t always pass in.

Auctions can throw us all kinds of unexplained surprises, but the key for buyers is knowing what to do when the property they like passes in.

This week threw us two curve balls, and both were passed in properties.However one was noticed after the auction results were released, and the other was negotiated immediately after the auction.

Typically when a property passes in to a genuine bidder, they will be invited inside and the agents will disclose the reserve price at which the Vendor is prepared to sell. Buyers need to be prepared for this and they must anticipate that there may be a negotiation. 

There is a fine balance between taking the opportunity to buy at the reserve, and risking the opportunity by pushing too hard for a lower price.

Being prepped with some background homework can make a difference during the intensive negotiation period following a pass-in. Having a firm idea of value, what the property represents to you, an understanding of items which need to be fixed/replaced, and being cognisant of the ideal settlement period for you is a great start.

The process can be very emotional and stressful for vendors, so it’s critical to keep a level head and to negotiate with respect. A Vendor will be less likely to accept a lower-than-reserve price if they feel insulted.

Even more importantly, Buyers need to keep their eye on the prize. Any frustrations with the Vendor’s position or the Agents’ negotiations can lead some buyers to make negotiation decisions which are detrimental to the outcome they are hoping for, so maintaining a cool head is vital.

I’ve seen Buyers walk away from a negotiation out of anger or spite when the price they were offered to purchase at was less than what they were prepared to bid outside during the auction. I’ve also seen Buyers fight for the sake of a sharp price when the negotiated settlement terms have been unrealistic for their lending arrangements, ie. 60 days at a sharp price when they have a house to sell in order to facilitate settlement.

Being fair, measured, and respectful can go a long way in a negotiation at an intense time.

In a healthy market, it’s fair to anticipate that a good property will sell reasonably quickly after the auction pass-in, whether it be the same day, the following Monday or within the week following once buyers have seen an advertised, firm “buy it now” price.

Our two pass-in purchases this week were both exciting. Yesterday’s beauty in Malvern was a tremendous home for a lovely local family and it was a thrill to be able to assist them throughout the process.

Our mid-week purchase of this gorgeous three bedroom house in Spotswood made us all proud.

Wishing our lovely clients years of happiness in their new homes…