The biggest threat when a property passes in

A pass-in auction result is more prevalent in a softer or declining market. There are all sorts of tips and ideas that I can share when this results, but all of the advice on the planet won’t help a buyer if they are letting their own fears threaten their strategy.

I often say to our clients during our pre-auction meeting, “Three things will happen. The property will either sell to you under the hammer, it could sell to someone else under the hammer, or it will pass in. And if it passes in, it will only pass in to me.”

“The best outcome is often a pass-in.”

But as much as it can sound like the best outcome, this scenario doesn’t take into account the tricks that our human brains can play on us.

Social proof, or lack thereof, is a difficult psychological phenomenon to explain to a buyer who finds themselves in the thick of a post-auction negotiation, because the irrational and rational thoughts they experience in this intense moment can often derail their plans.

Social proof counts for so much when it comes to auction bidding, and it’s really important that buyers in this current market have an understanding of the threat it can pose in a buyer’s market.

Social proof can be detrimental in a hot market also, but for different reason. Bidders risk exceeding their budget limit when spurred on by others. I’ve had countless auction experiences where I’ve heard a bidder (or their partner) lament their increased bids that were unplanned, but resultant during a heated battle. Seeing others striving for the property they wanted clearly created a feeling of, “if everyone else wants it this bad, maybe I should be prepared to pay more than I planned”.

However, missing out on buying a property for a fair price that one could have afforded is a bitter pill to swallow.

Yesterday’s auction could have been difficult for my buyers if they hadn’t been prepped with my recent comparable sales analysis and auction plan. We had anticipated we’d have competition in the crowd, and for whatever reason, our opponent didn’t bid. The auctioneer and agents even spoke to him directly to extract a bid, but he stood firm and watched it pass in to me.

We had already discussed value, competition and bidding strategy, and while I hadn’t anticipated a pass-in, this market is throwing us all kinds of surprises and I had also prepared my client for this possibility. Following the auction, my task pivoted to that of negotiation.

Aside from wondering what was wrong with the property, it could have been easy for an inexperienced bidder to assume that the market had spoken that day, and there was no better bid, hence the final pass-in bid represented the market value of the property. It’s a debate I often year from buyers.

It isn’t the case though; attendees at auction aren’t representative of the entire market.

They are merely a cross-section of some of the market.

Every vendor has a critical decision to make when negotiating with one buyer following an auction pass-in. To sell at a price lower than they had hoped for, or to risk letting that buyer walk away and chance finding an alternative buyer in the coming hours, days or weeks.

And sometimes, the ‘other buyer’ is also in the crowd. Agents will guide their vendors pending the price being offered, their sense of any potential other buyer interest from the auction campaign, and the chances of selling success that they perceive for their client if the property is marketed at a private sale price following the auction.

Pass-in negotiations sometimes break down because vendors are not prepared to accept the market value of their property, but just as often, pass-in negotiations break down because a buyer who was prepared to pay market value in the face of bidder competition is no longer prepared to pay that price tag because social proof has got in the way of their pragmatism.

Buyers who have assessed a property, arrived at a price that they’d be prepared to pay to secure the property, and then convinced themselves not to pay that price can be remorseful when the property sells to someone else.

When buyers allow social proof to recalibrate their sense of value, it can often lead to missed opportunity and regret.

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 price tag on realestate.com.au to re-cut a new cross-section. If a pass-in strikes and you love the property, consider it your lucky day.