What to do if you’re the highest bidder for a property that is passed in at auction

What do you do if you're keen to buy a property at auction but it is passed in?

Sure our property markets are picking up, but around 30% of properties put to auction still don't sell on the day, so how do you handle the situation?

Note: At an auction, if the bidding for the property doesn’t reach the reserve price,  it “passes in”.

When a property passes in, the highest bidder is generally given the first right to negotiate with the vendor’s agent.

So the first thing to do is to put yourself in the position to able to negotiate with the vendor and this means you should be the highest bidder.

It's not always easy to manipulate the order of the bidding, but it's important to put yourself in that position.

What happens next is the selling agent or auctioneer usually invites you to step inside the property and commence negotiations, while other agents approach the under-bidders to explore their level of interest and keep them "hot" in case the negotiations with you fall through.

Remember, the agent is acting on behalf of the vendor and it’s their job to get the best price for them and many of them do it very, very well.

You can bet your deposit they are highly skilled at emotion-based selling and will employ tactics to make you believe they are going to help you.

But, however, convincing the agent appears they're not on your side.

It's time for your negotiating skills

Of course, if you're not an experienced negotiator, this is when you really need a buyer's agent on your side to level the playing field.

Unless it is pouring rain does not follow the agent inside.

This puts you on their turf and isolates you from what's going on outside.

I prefer to stand outside where I can assess whether there is any real competition or just friends who are pretending to be buyers hanging around.

The perceived pressure of having competition outside, breathing down your neck, and waiting for an opportunity to negotiate is a powerful negotiation tool that agents use against you.

So I've found the tactic of displaying strong body language, standing on my own turf (even though I still might have butterflies in my stomach) surprises the agents and returns the negotiating power to me.

What is the vendor's reserve price?

Remember... the reserve is the minimum price the vendor told the agent (prior to the auction) he would accept for his property.

But that doesn't mean that now that the auction has failed he won't accept a lower price.

So when you hear the reserve price you should balk, seem surprised at how high it is and ask:

I understand that's the price the vendor was hoping for before the auction, but NOW what is the lowest price he will sell for?

Your next steps will depend on what the vendor wants and what you believe the property is worth based on your pre-auction research.

Tips: 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.

The key is to work within the price range you determined

What happens next really depends on which end of your price range the property is passed in for.  

If it is at the lower end you have more flexibility and clearly knowing if there is any competition (waiting outside) will influence how flexible you are.

I would say something like:

I've already offered you the upper end of what I think the property is worth

Obviously, if there are no other buyers waiting in the wings you can minimise the amount you are willing to counter-offer.

Now don’t fall into the trap of making the same counter increments as the vendor.

Often the agent will say something like:

Would you meet the vendor halfway?

 - but obviously, you're not obliged to do so. 

If you're considering buying a property at auction, why not level the playing field and have a professional buyers agent at your side representing you?

It levels the playing field in many ways.

Note: You've probably heard that 90% of all communication is conveyed through your body language, which puts buyers at a distinct disadvantage compared with the vendor, who has an agent working by their side and you can't see how nervous they are.

They have a professional negotiator representing them.

So should you!

About Greg Hankinson Greg and his team have successfully built and renovated in excess of 500 homes throughout Melbourne and are showing no signs of slowing down anytime soon. Being a Gold member of the Housing Industry Association and National Kitchen and Bathrooms Association, Greg’s focus is on Continued Professional Development, not only for himself, but his team of industry experts.