Negotiating after a property passes in at auction

Negotiating after a property passes in at auction
Thanks to a strong Melbourne property market at the moment, not a lot of properties are being passed in. In fact many are achieving sale prices well in excess of reserve thanks to vibrant buyer demand.

However, if the property you are interested in does happen to pass in at auction, how do you set yourself up to be included in the post-auction negotiation process?

There are two possible scenarios:

1. The property passes in to the highest bidder
2. The property passes in on a vendor bid

The starting point of the answer is found in rule #7 of the rules for the conduct of public auctions, published in schedules one to four of the
Sale of Land Regulations 2005.

Rule seven states: ‘If a reserve price has been set for the property and the property is passed in below that reserve price, the vendor will first negotiate with the highest bidder for the purchase of the property’.

You will see immediately there are some prerequisites to be answered. Has a reserve been set and has there been a pass-in below it?
If the answer to both is yes, then the highest bidder is the first person allowed to negotiate with the vendor, after a property is passed in.

If, however, the pass-in occurs on a vendor bid what is the position?
A vendor bid is a legitimate bid, but obviously this does not set up the negotiation process. In this instance, it is most likely that negotiations would proceed with the person who made the highest bid prior to the final vendor bid that closed the auction. This is in line with the intent of rule #7 mentioned above.

However, this does not preclude anyone else becoming involved, so always ensure that you have made you interest clear to the auctioneer or real estate agency staff at the conclusion of the auction to ensure you are placed well for post-auction negotiations. Ensure you gain an understanding, if possible, of the vendor’s reserve price so you can estimate how far off you are from making a successful offer. If a property has been passed in, you are obviously in a commanding position to negotiate the best price. Finally, regardless of how negotiations ensue, always have a maximum price and stick to it!