The real reasons why the property didn’t sell at auction

Auction pass-ins are sometimes predicted, but when they strike it still creates a challenge for most buyers. Social proof is the culprit, but understanding the reason why the property passed in can often help.

I’ve previously written about social proof and the negative impact it can have on pass-in negotiation outcomes.

This blog aims to identify the likely reasons why a property could pass in.

The first reason relates to the campaign itself.

Some campaigns fall short of attracting the ‘right’ buyers. Quote ranges can sometimes be the culprit. Buyers often lament about the auction result flying past the quote range, but I’ve witnessed countless underquoted auctions that have attracted the wrong budgets. When the bidding is thick and fast, but stops short of the vendor’s reserve, the property will pass in. It doesn’t always mean that the vendor’s expectation is out of line with market value. It can sometimes mean that the auction quote range was so far from the vendor’s expectation and the buyers in attendance are the wrong buyers.

The question is; if the property is then listed online for private sale at the vendor’s asking price, will it attract a fresh set of ‘right’ buyers? This is the true litmus test.

Photos and presentation of a property count for a lot too. If the property presents better in real life than the photos online, the vendor has a problem. Photos and staging are supposed to attract buyers to the property, not deflect them. I can’t even count the number of times I’ve walked through a property with delight, marvelling at how much better it looks in person than online. Spending a few hundred dollars more on great photography is a no-brainer when navigating a sale. And investing in staging makes complete sense when the potential return on investment is calculated.

An agent’s connection and follow up with the buyers, (or lack-thereof) can be one of the key issues when it comes to pass-ins. If a listing agent isn’t in touch with the buyers throughout the campaign, they don’t identify opportunities to pivot. Whether it be a renewed price-discussion with the vendor, or a change in the quote range, these insights can shape or break auction success. A discussion with a key buyer about offers prior to auction are obvious opportunities for agents to consider too. If I’m not receiving at least two follow up calls from an agent in the final fortnight to the auction, I can assume they might not be making calls to any other buyers too. They could be flying blind, so to speak.

Bad luck with key buyers is another driver for an auction pass-in. A listing agent may be feeling confident about an auction outcome with two keen buyers on hand, but this can change in an evening. I’ve experienced situations when agents have called on the Friday before auction with the news that they have lost both key buyers. A change of heart, a sudden job loss, or (more likely) an alternative property purchase can foil an agent’s campaign.

The second reason relates to the market conditions

We all understand the relationship between auction clearance rates and the economy. When auction clearance rates are low, the rate of auction pass-ins are higher. Credit availability, consumer sentiment, unemployment and the cost of living are all directly linked to auction results.

High listing volumes also have a part to play, as localised supply and demand will impact the auction clearance rate also. If we have a sudden surge in auction listings, a typical buyer pool will have more stock to choose from and buyers will be diluted.

The third is about the financial challenges associated with the property and the buyer profile.

Whether it be an unusual zoning, items outside of bank policy (i.e. floor area, stratum title/company share title, farming land, flood zones, bushfire zones etc.), buyers will be reluctant to bid unconditionally.

Nobody wants to take that gamble if obtaining finance is in question.

This challenge also applies to the magnitude of the renovations required, (or an overlay that could impact the cost of a renovation). In the case of an expensive renovation, the bidders will only be those who can finance the property purchase and the renovation. Without considerable savings or available equity on hand, some purchases won’t be financially feasible.

Over the past four years we have seen countless examples of well-located, quality addresses passing in after auction due to the condition of the dwelling.

It doesn’t mean that the property is a bad asset. In fact, the buying conditions have been opportune for those who can manage a great renovation on a quality property. Prices have been softer since trades have been restricted.

The fourth relates to the buyer demographic that have been attracted to the property.

First homebuyers come to mind in this example. This cohort are usually more risk-averse and less comfortable with the unconditional nature of an auction purchase. They may be pre-approved and they may have the deposit on hand, but they often avoid bidding at auction. It is not surprising that many agencies choose to conduct private sale, (or expressions of interest) campaigns in these price points and neighbourhoods. It enables the risk-averse buyers to submit conditional offers, such as subject to finance and subject to building/pest inspection.

I have seen plenty of auction pass-ins that have attracted significantly higher-than-anticipated prices once first homebuyer floodgates have opened for conditional offers.

Unless a property has a fundamental flaw, buyers shouldn’t be discouraged from pursuing a property just because it passed in. Like I said in my earlier blog about this….

Remember, the entire buyer market is not in attendance at any one auction. Only a cross-section. It only takes a few agent phone calls or a new price tag on realestate.com.au to re-cut a fresh cross-section of buyers. If a pass-in strikes and you love the property, consider it your lucky day.