What happens when the property you bid on, passes in at auction?

When a property fails to sell at auction, it is described as “passed in”. But what does that really mean, especially if you are interested in buying the property? 

A passed in property is one that has not been able to achieve a bid at auction that either met or exceeded the reserve. 

When this happens, the auctioneer will state the party with the highest bid will have the first and exclusive opportunity to negotiate with the owner. If that’s you, then you need to be prepared for what comes next.

The “exclusive” element of this negotiation is not without benefit. The seller and their agent cannot play you off against other parties. This period might last only 20 minutes and can be fast and furious. 

Discussion can be intense, as the vendor will be disappointed the property didn’t sell for their desired price, and the agent will be under pressure to get a result. Nevertheless, you are in a position to secure the property if you can agree on the price. 

As a buyer, this is the time when the market research you have done will be the decider on whether you buy the property or not. 

If you know the local market’s state and the prices achieved from recent sales of similar properties, you’ll be able to negotiate from a position of knowledge. A builder’s inspection before the auction might give you additional firepower.

You’ll have the agent’s respect if you’ve already demonstrated your knowledge of the local market and shown to be a genuine potential buyer. They’ll know you’ll not be pushed you beyond a market-level, even if that’s what the seller is demanding. 

Remember that it’s important to conduct all negotiations respectfully. It’s important in this pressure-cooker moment that nothing is taken personally, as there’s no advantage in either party being antagonised.

It’s common to hear that your bid was considerably lower than the reserve price but ask what the vendor expected as a minimum. If you’ve done your research, you’ll know if this was a reasonable expectation. Ask the agent how they came to that pricing position, so you have an insight into their logic. 

As your last bid was your effectively your offer, don’t be pushed into making another offer immediately. Instead, ask the vendor to make a counteroffer. Without the vendor’s counter, there’s no negotiation, only you blind bidding against yourself. 

If the counteroffer feels excessive, you can use your research to address the disparity between it and similar sales in the area. Also, inquire about whether other negotiation levers can be pulled – for instance, in terms of settlement times. Would a longer or a shorter settlement time work better for the seller?

Above all, though, remember nothing is personal. The agent is working for the seller and will do their best to deliver them the best possible price. This can be an intense experience, but you should stay calm and continue to negotiate until you want to either buy or walk away.