Buyer beware: Why you shouldn’t expect to bag a bargain when a property is passed in

Article published by Domain

When a property fails to sell at auction, don’t automatically expect a bargain. Property buyers should be aware they might be asked to pay an “acceptable price” that’s often higher than the reserve in cases where a house or apartment is passed in, reveals a leading real estate agent.

Brighton-based auctioneer Campbell Cooney, from Hodges Real Estate, says the price a vendor will accept for a passed-in property can rise during the post-auction negotiations.

“If my reserve was $2 million and I passed it in to a bidder at $1,995,000, I would be telling him the acceptable price was $2.1 million or $2.2 million because when you pass in a property there seems to be some unwritten rule that you have to negotiate, so you have to add something on,” he says.

When a property fails to sell at auction, don’t automatically expect a bargain. Property buyers should be aware they might be asked to pay an “acceptable price” that’s often higher than the reserve in cases where a house or apartment is passed in, reveals a leading real estate agent.

Brighton-based auctioneer Campbell Cooney, from Hodges Real Estate, says the price a vendor will accept for a passed-in property can rise during the post-auction negotiations.

“If my reserve was $2 million and I passed it in to a bidder at $1,995,000, I would be telling him the acceptable price was $2.1 million or $2.2 million because when you pass in a property there seems to be some unwritten rule that you have to negotiate, so you have to add something on,” he says.

“There is a reserve during the auction and then there is an asking price.”

Once there is a pass-in, the reserve is dead in the water. The agent re-confers with the seller and a new desirable price is agreed upon.

Pass-in negotiated sales have been on the up and up in Melbourne in recent weeks as auction clearance rates have eased to below 75 per cent.

There has also been an increase in would-be buyers, who may be the underbidder or someone who didn’t bid during the auction, attempting to purchase once a property has passed in to the top bidder.

Sometimes this approach works. More than not often it doesn’t, but it’s important to know there are few hard and fast rules governing post-auction negotiations.

Under Victoria’s Sale of Land act, if a property is passed in, an agent must hold sale negotiations with that top bidder for a reasonable period of time.

But there’s a catch.

If you say, “I won’t budge on the figure I offered at auction,” then the agent is likely to send sales staff outside to negotiate with other interested parties within a minute or so.

Alternatively, if you’re the top bidder and are prepared to increase your offer closer to the asking price, an agent may give you 15 minutes of grace time to cut a deal.

“People think they have the right to come in and negotiate and they have 10 or 15 minutes to do so – well, you don’t,” Mr Cooney says.

In late-June, Mr Cooney auctioned a three-bedroom townhouse at 1/3 Capitol Avenue, McKinnon. The property was passed in for $1,060,000. The highest bidder went inside and two other parties on the street then tried to buy the property.

One of the outside parties immediately offered $1.1 million.

Mr Cooney says the person inside ended up buying the dwelling for $1.14 million: “The person outside, unbeknownst to the people inside, had offered $1.35 million. But it wasn’t a bidding war. The outside buyer kept on increasing their price until I gave the person inside, with the permission of the owner, the approval to buy it.”

Jellis Craig‘s Alastair Craig says he makes it clear at auctions that he won’t negotiate with anybody other than the highest bidder until those negotiations break down.

On July 1, Mr Craig passed in a Victorian home on a 636-square-metre block at 63 Liddiard Street, Hawthorn, for $2,775,000. The highest bidder then upped the ante and bought the house for $2.9 million.

However, the underbidder tried to keep negotiating. He was told he had missed the boat.

Melbourne-based auctioneer trainer Phil de Fegely says the reserve price is “a bit of a moving target.”

“As an auctioneer, my role is to maximise the result for the vendor,” he notes. “I don’t get paid by buyers.”