With auction clearance rates dropping across the Australia’s capital cities, it is important to know what happens once a property is passed in. If a property goes to auction and doesn’t meet the reserve price then it is the duty of the auctioneer to ‘pass in’ the property. Typically, the auctioneer will give first rights to negotiate to the highest bidder.
What are the buyer’s options?
The highest bidder has first rights to negotiate with the real estate agent and vendor. As the highest bidder, you can elect to negotiate in private within the property or outside if preferred. Often Agents will encourage you into the property to create a deeper emotional attachment the property they are trying to sell you. It is important to try and maintain a calm, professional and respectful negotiation technique. Remember everyone is working towards the same goal.
As a prospective buyer, you may ask the agent to disclose the reserve price before making any further offer. In Victoria, the agent is obliged to provide the bidder or bidders with a Statement of Information, which should indicate the potential selling price. It is therefore very important for the bidder to be familiar with recent sales in the area and have an understanding of the current market climate. As with all negotiations, information is power.
If the reserve price isn’t disclosed then the buyer may have to meet the asking price or risk losing their first rights advantage to other interested parties. Should there not be any other interested parties then the ball is back in the hands of the initial bidder to negotiate a price.
When negotiating as the buyer, you don’t have to make the same counter increments as the vendor so sticking to a plan and being aware of your options is important in sealing a deal. The buyer shouldn’t feel pressured to “meet the vendor halfway”. Remain strong in your position and certainly do not over reach your financial limits.
If an offer is accepted, contracts will be exchanged on the day with the same rules applying under auctions terms. This means that although negotiation has occurred in private, the cooling-off period still doesn’t apply and a deposit will be required…. The property is yours!
What are the seller’s options?
It is important to know as the vendor that although the property didn’t sell during auction then it doesn’t mean you won’t find a buyer. Some vendors might use this strategy to negotiate with a potential buyer on a best price instead of lowering the reserve mid-auction where the results might not be the same. For others it may be an indication that their asking price is too high or simply there isn’t enough interest in the property at the time. Either way, a proactive approach to understand reasons why the property didn’t sell and adjust for a new selling campaign should be implemented quickly.
Negotiation with a buyer on a comfortable selling price can be a tricky process. It is common for both parties to employ tactics for the best possible result however this has to be done in a respectful manner. A seller has the right to walk away or cancel the negotiation should the buyer negotiate too hard and in an unreasonable manner.
If the property fails to sell on the day of auction then the vendor can market the property through private sale. A review into the marketing strategy should be implemented to ensure that the property is advertised in a revitalising manner to entice new or old prospects. Once listed for private sale then it is up to the seller to choose whether or not to accept each offer or enter into a negotiating process with the help of a real estate agent.
If the reserve was set too high then the vendor can review this in consultation with the real estate agent. It is the choice of the vendor to reduce the reserve price before relisting for a private sale or keep it as it is.
As a seller it is important to keep perspective and understand why their property was passed-in. Most properties do eventually sell but acting swiftly and being open to suggestions is important for a successful result.