Navigating a pass-in

Auction properties can pass in for numerous reasons. When a pass-in occurs, many bidders play their cards badly.

Firstly, let’s identify what a ‘pass-in’ means and what the auction rules permit. A property can be passed in by the auctioneer if the vendor’s reserve is not reached. When they announce that the property is passed in, the highest bidder will be invited to deal with the vendor exclusively at their reserve price. In the event that either a live bid has not been made, or the auctioneer has placed a vendor bid as the last bid, no bidder will have an exclusive right to negotiate. Any participating buyer can attempt to negotiate.

While the vendor reserves the right to stand firm on their reserve price, the reality is that most vendors will negotiate.

Secondly, let’s address the reasons why a property may pass in. Sometimes it’s a case of a greedy vendor who is not particularly motivated. This is unusual, because auction campaigns require effort and investment. Other times, a pass in my be a result of a vendor who is out of touch with market values. We often see vendors basing a lofty reserve on a recent sale that they feel is comparable to their property. In some cases, the new sale may have resulted that very morning of their auction.

A weak buyer’s market is more likely to result in higher pass in activity also. Occasionally, a property passes in because of it’s rarity. It could be so rare, that finding a suitable buyer in a four week campaign is unlikely.

And other times, bidders just get cold feet and don’t bid. Social proof can create this situation, and it can happen more than most would imagine.

Understanding what can cause a pass in is merely academic.

The real challenge arises when it comes to understanding our emotions. For many, a pass-in can create a sense that is quite reversed from what they prepared for. Facing a competitive auction requires a willingness to fight for the property. Buyers who prepare for the auction will usually have an upper-limit budget in mind. It will be a stretch limit that they are willing to place on the table in the heat of the battle.

When the property passes in, however, they can grapple with a set of very different emotions. Social proof can play a significant role for some who may wonder, “Why does nobody else want the property?” Other feelings may include, “Am I overpaying?”, particularly if other bids were also received.

The challenge with the latter relates to the buyer pool on the day. If multiple bids have all fallen under a vendor’s reserve, the question remains;

“If this property is listed for private sale on Saturday night at a set price, will new buyers be introduced to the campaign?”

The answer is; quite possibly. Auctions preclude a lot of buyers, and plenty of failed auctions sell within the days following. Whether it be to buyers who required a finance clause, buyers who weren’t keen to bid at auction, or those who assumed the reserve would be higher, buyers often do come out of the woodwork straight after a failed auction.

Navigating a pass in requires a preparedness to bid, a familiarity with values in the area, and a willingness to negotiate carefully.

It’s critical to be armed with analysis and to be familiar with the auction rules.

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