We have seen lots of properties sold under the hammer, but coming into the final weeks of 2017 we have entered a different market that puts buyers in an ideal position. With plenty of stock to choose from, this could lead to more pass-ins at auction. Vendors need to keep this in mind and understand that the competition is strong.
Whether you are buying or selling a home, it’s important to have a strategy in place to prepare for a pass-in so you don’t get caught off guard on auction day.
If you’re a buyer
a) Participate: If you’re at auction and a property gets passed in, you need to make sure that the property is passed in to you, as this gives you first right to negotiate with the vendor. To ensure this happens, you must participate during the auction.
b) Be the last one standing: Once a property is passed in, the common scenario is that the agent will have the vendor in one room and you in another. Before this happens, often the agent will stay at the front of the house and see if there are any other people interested. Our tip is to avoid walking inside the house, and instead stay at the front and watch the competition leave. This puts you in a better negotiating position, knowing that there is no one left to compete with.
c) Don’t pay more: If you are the last person standing, the auctioneer will most likely ask you for more money, but think about if you would pay more for a house that passed in at $800,000? If the house did pass in, it shows the market is not willing to pay that price. Unless you are a skilled negotiator, generally people give in and pay more.
d) Ask for the reserve: Speak to the auctioneer and see if the vendor will reduce the reserve. This puts the vendor in a position where they have to reveal their cards. For the auctioneer, it is usually a time game as they might have to run to another auction. If the vendor is not willing to drop the price, be prepared to say that ‘this is my last offer and we can talk about it on Monday’. The deal does not need to be made on the day.
If you’re the vendor
a) One more run: After the first run, agents can then be assertive and ask the vendor for the reserve. Don’t give out your reserve at auction and fall for the pressure of bringing it down too quickly. You can ask the auctioneer to go back out and try to bring the competition up, even if it’s just a couple thousands of dollars. Get a feel for the situation and the interest of the property and, as a vendor, don’t be afraid if a property gets passed in.
b) Know the true value: If the property is passed in, don’t just rely on what the agent is saying. The vendor should do their homework and know other sales results within 2km of the area, to have a clear idea of what their property is really worth. You will then have some evidence if you need to argue that it’s worth more.
c) Remove emotions: When people have lived in a house and formed an emotional connection, they form an opinion on what they think their house should be worth. Many vendors don’t think there is a need to seek independent advice as an agent is representing them, but that’s not always the case. By having a buyer’s advocate represent you, they will remove any emotions attached to the sale relating to price and are able to negotiate with the agent on your behalf.
d) Another time: If you don’t get what you want on auction day, don’t feel that you have to sell it, unless you really have to. If you have done your homework and know that the property still has not reached market value, hold back as someone who walked away might come running back on Monday when they hear it didn’t sell.