How long can a pass-in auction negotiation go for?

I am often asked the question in every pre-auction client meeting.

Typically we meet for a cup of tea about an hour before the auction bell rings. The cafe is usually nearby (but not too close… fear of chatting about strategy within earshot of a competing buyer always spells caution for cafe selection). We order tea, not coffee. Adrenaline is already palpable… no caffeine required. Particularly nervous buyers order nothing. They clutch their glass of water and exhibit all of the nerves we are used to.

Our job at this point is to calm their nerves, go over our pre-arranged strategy and prepare them for what could happen.

Only three outcomes are possible.

The property may sell to a willing buyer above our budget limit, in which case the crowd will clap, the agent will shake my hand, we’ll reconvene and we’ll commiserate for a moment before we get them ‘back on the horse’. The property may sell ‘under the hammer’ to our buyer on my final bid. This means that the bidding reached reserve and my bid was the highest. The spectators and participants clap, I find my buyers in the crowd, we go inside and I guide them through the contract signing and cheque payment process. The third outcome is the least predictable; it’s when the property passes in. This occurs when there are either no bids, or the bidding from the crowd does not reach the reserve. If genuine bids are made, the property will ‘pass in’ to the highest bidder and they will be given the opportunity to negotiate at the vendor’s reserve price exclusively. 

In most auctions I’ve bid at, a passed-in property has passed in to me. Only twice has a property passed in to another buyer, and if this occurs, it’s due to one of two reasons; either my budget is insufficient for the property or the vendor’s expectations of value is too high.

Last weekend we bid for a delightful couple, who knowingly had targeted a property which was likely to sell at the very upper limit of the budget, or perhaps above their budget. Expectations were low, hopes were high, and nerves were evident.

This beautifully designed two story, own-title property boasting three upstairs bedrooms, ensuite, lock up garage with parking for a second car, private sunny courtyard in glorious WIlliamstown stole their hearts.

After our local cafe final debrief, we parted company and headed each to the auction. Although we kicked off the bidding with a bid of $850,000, we ultimately weren’t the buyers who the property was passed in to. Somebody else wanted it too and their last bid of $920,000 landed right on our bidding limit. Negotiations didn’t continue afterwards when the buyer was unwilling to bridge the gap between his final bid and the vendor’s reserve.

Disappointed, but accepting of the result, our buyers weren’t able to extend themselves to the vendor’s reserve either.

Three days passed and the vendors had obviously reconsidered their position. Would we be willing to negotiate somewhere in the middle? Sadly we couldn’t, but the absence of the other buyer suggested that we may have a small chance of securing this property at our maximum budget price.

By Wednesday we documented our offer on a contract so that the vendor knew we were genuine. The negotiations ensued but we were still a small way off a mutually agreed price.

It wasn’t until Friday that our agents called with the news. The vendor had decided to accept our offer. Our anxious buyers (who had waited for six days for their exciting outcome) finally had their dream home. 

As I said to them five days prior “there is no such thing as ‘normal’ in real estate.” Time frames can be hard to predict, vendors can be challenging to understand and competing buyers can surprise us at the best of times.

This pass-in negotiation took almost a week, but it was worth the wait.

We’ll miss this lovely couple and I’ll enjoy reminiscing about that happy phone call each time I drive through their neighbourhood.