While Melbourne’s auction clearance rate is below what we’d usually expect for this time of year, it’s not all doom and gloom as the media would have you believe; however the reality is that the market has softened somewhat. Misaligned vendor and buyer expectations regarding price is the key driver of a lower clearance rate and more passed in properties – but what happens after a property is passed in?
What does ‘passed in’ mean?
When a property is passed in, it means the bidding has not reached the vendor’s reserve price (the minimum price that they’re prepared to sell at). The vendor is opting not to sell the property for the highest bid that was achieved at auction. A property can be passed in on either a bid from the crowd or a vendor bid.
If a property is passed in on a bid from a potential buyer, this person is recognised as the highest bidder and has exclusive rights to negotiate with the vendor following the auction. If an agreement is not reached, the selling agent can begin negotiations with any other interested parties.
If a property is passed in on a vendor bid, the agent can negotiate with any genuine buyers following the auction.
If a property is passed in and a sale is unable to be negotiated with the highest bidder or other interested parties, the vendor may choose to offer the property for private sale or take it off the market.
How do I know if a property is likely to be passed in?
During an auction, the auctioneer will often stop the bidding to “step inside” and ask the vendor for their instructions based on how the auction is progressing. If bidding has reached or is close to the vendor’s reserve, the auctioneer will check that they can sell the property at this price if no further bids are received. At this stage, the auctioneer will advise the crowd that the property is ‘on the market’, which means the property will be sold to the higher bidder on that day.
If a property is not yet ‘on the market’ and bidding has slowed or stalled, it’s likely it may be passed in. If you want to buy it, it’s important to be the highest bidder so that you have exclusive rights to negotiate with the vendor.
How do negotiations work once a property has been passed in?
If a property has been passed in to you, the auctioneer will usually ask you to come inside to negotiate in private. Before you start discussing price, it’s a good idea to ask what the reserve was. (The agent may not tell you, but it never hurts to ask).
If you’re prepared to meet the reserve price and conditions of sale, the property will be sold to you. If your best offer is below the reserve price, the agent will begin negotiations with any other interested parties.
What happens if my offer is accepted?
It’s important to understand that an offer on a passed in property that’s accepted on auction day is subject to the same conditions as an auction sale – that is, a cooling off period does not apply. You’ll also have to pay a deposit on that day.
At Greg Hocking, we’re local market specialists. Our experience and area knowledge allow us to guide our vendors with considered advice about the likely sale price of their properties. Contact your local office today for a complimentary market report or property valuation.