Your Questions Answered

As the property market continues to cool, more and more properties are not meeting the vendor’s reserve price, so the property is then “passed in.” Auction clearance rates have fallen from the 80% range achieved during last year’s boom to being closer to 50% and in some cases even lower.

Why is this? As property prices fall, some buyers hesitate to bid at an auction in the hope of picking up a bargain later, but this tactic doesn’t always work as they risk being outbid afterwards by an unexpected rival.

Another reason for properties passing in can be mismatched price expectations – at the moment buyers are cautious, while many vendors are unrealistic about the price expectation hoping to achieve the sky-high prices fetched at auctions over the past year.

When a property passes in, the highest bidder is generally given the first right to negotiate with the vendor’s agent so it’s worth your while to be the top bidder, even if well below reserve. You then get the first opportunity to negotiate with the vendor.

What happens next is the selling agent or auctioneer will take you aside to negotiate between you and the seller. The hope is always to have the negotiations completed quickly, on the day.

And that’s what we are currently seeing happening in today’s market – more properties being passed in and negotiated quickly after the auction.

If you’re like me, you’ll have an estimate of what the property is worth under low competition (what you’d really like to buy it for) and then the maximum you would be prepared to pay under intense competition (such as if the auction had continued on). Of course, just because the property has been passed in doesn’t mean that this is the market price, it is simply a starting point for further negotiation.

The real market value is what you, and hopefully the vendor, have assessed it to be based on comparable sales evidence.

Armed with this information, if a property you’re bidding on doesn’t meet reserve and passes in, you’re in a great position to agree a sale price and buy the property.