With the advent of lower clearance rates, we are seeing more auctions ending in a pass in. A “pass in” occurs when the bidding at an auction does not reach the vendor’s reserve and, as such, the auctioneer having failed to illicit a high enough bid, passes the property in and according to the rules of the auction, must negotiate with the highest bidder first.
If you have been to many auctions, you will probably have heard the auctioneer open up the auction with a “vendor bid”. This is a bid, made by the auctioneer, on behalf of the vendor, quite often, to kick things off and get the bidding started. But it is sometimes used by auctioneers to advance the bidding if they have only one bidder. In other words, a bidder from the crowd bids $600,000 and nobody else says anything, so the auctioneer will bid $650,000 “Vendor Bid” and then ask the original bidder to go over the top.
Now the auctioneer will say things like, only the top bidder gets the lawful right of first negotiation and as the Vendor Bid is the highest, then nobody has this right. This is totally incorrect and a total lie. The highest “real bid” from the audience does have the first right to negotiate with the vendor.
In both 2012 and again in 2016 the Real Estate Institute of Victoria analysed the rules and publicly acknowledged that if a genuine bid had been made, that no vendor bid could be used to remove the right to first negotiation.
Consumer Affairs Victoria have also addressed this exact situation and on their website has said that the highest bidder has the first right too negotiate with the vendor. This includes if the property is passed in on a vendor bid!!! https://www.consumer.vic.gov.au/housing/buying-and-selling-property/selling-property/selling-property-by-auction
So, if you are bidding on Saturday and you have the highest bid, and the auctioneer tries to remove your right of first negotiation by continually vendor bidding over you, call him out. If you are the highest “real” bid you do have the first right to negotiate ahead of anyone else.
If you are looking for a professional negotiator, please feel free to give our office a call.
Ian James
Director JPP Buyer Advocates