Properties “Pass in” all the time

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With the end of the year getting closer and still thousands of auctions yet to run, anyone trying to secure a property in Melbourne needs to understand the auction Pass In process. More and more properties get passed in at auction late in the year.

A “Pass In” means that the bidding that has been offered is not as high as the vendor’s reserve. When the vendor’s reserve is reached the auctioneer may announce that the property is “ON THE MARKET”. Anything before this means that the property is likely to pass in to the highest bidder.

If the property is passed in to you then you will have the first right of refusal at the vendors reserve. In other words, the auctioneer or selling agent will usually ask you to come in to the property that is for sale and they will tell you the vendor’s reserve. You will then have the right to accept or decline. If you accept, the deal will be done, with no other interested parties having any recourse. If you decline, or counter offer, the agent has the right to speak with any of the under bidders (or anyone else for that matter) and the negotiations take on a “private sale” feel. There is no longer any transparency that was shown at the auction.

I have dealt with hundreds of agents in post auction negotiations and the vast majority are reasonable and quite open to a negotiation at this point. Many will negotiate in good faith but be aware they will have other agents out talking to under bidders and most will have someone on the phone to any parties that showed interest prior to the auction who have not attended, BUT, if the property has passed in to you, you have the highest bid and the auctioneer knows you are the best chance of getting a deal on the day. AND THAT IS HIS MAIN JOB – TO GET A DEAL.

Once these negotiations start, remember everything from amount of deposit, to settlement terms can come back into play. Even if the agent stipulated that you were to bid on a 10% deposit, with settlement in 60 days, you are now free to offer anything else you wish. Negotiations are not always about the final price, they can be about time or what deposit you are willing to offer.

No negotiation is ever the same as there are always different players, with different circumstances, different vendors in different financial positions, different agents with different levels of negotiation skill and also different vendors with different emotional attachments. You need to very quickly decide how far you are going to move, if any, and then stick to it. The best rule of thumb, If you are too far away from the reserve DON’T START NEGOTIATING! Do not move of your original bid even if you have to walk away. If my clients’ top number is well below the agent’s reserve, and I don’t think the vendor’s agent will move too far, then I will walk away without moving from my bid. This is an extremely risky tactic but there is no use offering your limit especially if there are no other under bidders. Walk away and come back to the table later that day or the following day. If the vendors reserve is within my client’s budget, based on what my client instructs of me, I will rarely leave the auction without owning the property.

Vendor bids are bids made by the auctioneer to keep the auction moving or get it started. In Victoria, the auctioneer can make as many vendor bids as they like. I have seen an auctioneer vendor bid over a genuine bid, and then tell the crowd the original “real” bid no longer has the first right of negotiation. This is absolutely incorrect. The Real Estate Institute of Victoria have said that the last genuine bid will have the right to negotiate. However, either way, do not bid over a vendor bid unless someone else comes into the bidding.

Do not be perturbed if a property passes in at auction. Well over 60% of all the auctions I attend pass in. And of those most are negotiated within the hour and are listed as “Sold at auction” in their results. It is perfectly normal, and good sales practice to get as much bidding as possible from all prospective purchasers and then try to get a little more out of the top prospect. That is the selling agents’ job. Never take negotiations personally. If you do you will struggle to keep your cool.

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Ian James
JPP Buyer Advocates

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About the author

Ian has been operating his own businesses for more than 25 years. During this time the self taught lessons of building the business, dealing with staff, suppliers, clients and economic woes have been invaluable. Ian is a fully licensed Real estate Agent, a member of the REIV and registered with the Business Licensing Authority.

Buying property is not just sticking up your hand and outbidding your rival. It is an emotional, fiscal and psychological decision that needs to be planned and well executed. Ian is usually involved in over three hundred property negotiations per year; ranging from the $250,000 first unit purchase for a young couple to multiple million dollar residential developments. Ian's business background and endless numbers of negotiations make him one of the industry's leading negotiators.

Ian is married with two adult children, living in Patterson Lakes. He is a keen fisherman when weather and business allows the time.