Auctions are high adrenaline environments and a buyer’s blood will be pumping if a property passes into them. Pass in’s can create mixed emotions. For a buyers advocate it’s an ideal scenario, but for a some it can invoke a sinking feeling of self doubt. Without the ‘social proof’ of competition, people tend to second guess their decisions – ‘Why didn’t anyone bid? Or, why didn’t they see value where I have? What’s wrong with the property? Have I not done enough research?’.
This uncertainty can be paralysing. It’s an important time to pause for a moment, take a deep breath and assess the situation. We encourage clients to see a pass in as an opportunity, and we remind them of the due diligence and research which led us to setting the budget in the first place.
Understand the process
There’s no formula or guideline to how a pass in will run, but a buyer willhave the exclusive right to negotiate if they’re the highest bidder. Most people are aware of this rule, but what happens next?
Whether you go inside or stay outside depends if you need to keep an eye on other potential bidders. Having the exclusive right to negotiate doesn’t mean that other agency staff at the auction aren’t allowed to speak to other buyers whilst you’re negotiating. We often go inside with the agent but ask our clients to stay out front and let us know if our competition is hanging around or if everyone has left. A family member or friend could help in this situation, or you could stand near a front window so you can see what’s happening on the street.
The next step is to ask for the reserve. It’s important to understand that this might not be the reserve which the vendor would have accepted under competitive bidding conditions. Be aware that the agent may suggest the reserve price is significantly higher to create a gap to commence negotiations. An agent might also put time pressure on a buyer by putting a deadline on the negotiation, or perhaps be evasive about disclosing the reserve price.
There are nohard and fast rules – every situation will be different depending on the agents negotiating style, their personality, the vendors position, the buyers motivation and the risk of other potential buyers hovering around.
Be armed with research
Being familiar with recent local comparable sales can be handy to draw upon, especially if the vendors expectations don’t align with market value. They’re even more important if an agent already knows the buyers budget, and the buyer needs to use firm evidence to argue why they don’t see value at the asking price. Comparable sales need to be relevant and recent. A sale from 2015 for a property which is on half the land size won’t be helpful.
Work with, not againstthe agent
An effective negotiation style will be firm, calm, confident and respectful. Fighting with an agent risks getting them offside and minimises the chances of a productive discussion. An agents personality style will dictate our approach. A pushy and hostile agent requires a different tactic to a calm and approachable one. An aggressive agent can cause a buyers ego to flare up, which can create an irrational response to what should be a rational decision making process.
Common mistakes include –
Threatening the agent: Threatening an agent for underquoting (even if they have) is a sure way to burn a bridge. There’s another time and place for this conversation.
Saying it’s your walkaway price: All credibility will be lost if you state that your offer is your walkaway figure, only to keep negotiating at a later point. The only time you should say this is if it truly is your absolutewalkaway price.
Being dismissive of the property: There’s a tactical way to bring up negative aspects of a property without being antagonising. Putting the property down too much could have the unintended consequence of offending the vendor, making them less willing to compromise.
Terms versus price
In some circumstances a variation of terms can get a deal across the line. Being in a position to offer a 30 day settlement could appeal to a vendor who has already purchased, or offering the option for the vendor to lease back the property after settlement could be attractive for a vendor who hasn’t yet bought elsewhere. Sometimes the terms of an offer are more attractive to a vendor than the price. An offer can be two (or more) tiered – for example: offering a lower price on a short settlement, versus a higher price on a much longer settlement.
In rarer circumstances during a pass in an agent might consider a conditional offer. For example, being subject to finance. The agent may suggest that an offer can’t be conditional under auction conditions as it does introduce risk to the sale, but it canbe done. Bear in mind – a conditional offer is very unlikely to be accepted if the agent knows there’s an underbidder prepared to negotiate on unconditional terms.
Testing the limits
Being the highest bidder when a property passes in does put the buyer in a position of power. Be firm and stand your ground, but if the negotiation has come to a standstill and you have room to move, don’t risk the agent calling an end to the negotiation. Remember, if a there is no final agreement on price the agent will take the property back to market – either to the underbidders or putting it online as a private sale. We know how far we’ve tested the limits by the agents body language and how amenable they are to keeping the conversation running. An agent will be trying to facilitate a deal. If they’re throwing their hands up in defeat it’s probablybecause they’re dealing with a stubborn vendor, not because they’re trying to be a hero. They want a result for their vendor, and they want to get paid. We’re always mindful there’s an emotional vendor on the other side of a negotiation, and a vendor will be even moresensitive if their property has just failed to sell under the hammer.
Knowing how far to push the agent will depend on a buyers circumstances – other suitable properties on the market, how rare the property is, how realistic the price is, how much they love the property, and whether they’re under time pressure to purchase or not. The position of power shouldn’t be put at risk if it’s the right property for the right price.
– Amy Mylius
