This spring is likely to see reduced auction clearance rates and a higher number of homes passed in, with demand having softened since 2021.
That makes it especially important for property buyers to understand the dynamics at play once the bidding cools, and the strategy shifts.
Here are some tricks of the trade to swing the scenario in your favour.
How was the property passed in?
Passed in on a vendor bid
A vendor bid is made on behalf of the seller if they are not satisfied with the last bid price.
As a prospective buyer, allowing a property to pass-in on a vendor bid is a risky strategy.
That’s because it gives you no exclusivity to negotiate with the auctioneer and vendor. The process can quickly shift into a blind negotiation. This lacks transparency and puts you on the back foot in the negotiation process.
Passed in on one bid
This is probably the ideal scenario for you as a potential buyer and puts you in the box seat during the negotiation.
Everyone else has had an opportunity to bid higher than you, and they haven’t chosen to. That puts you in a strong bargaining position and means the auctioneer/agent is going to deal with you exclusively.
It’s unlikely that you’ll face as much competition or indeed any competition. And there’s far less risk of agents referring to other bidders.
However, be aware that legally, if you decline the vendor’s reserve, then they have the right to speak to other parties.
Generally, however, an agent will negotiate with you in good faith, up until discussions reach a stalemate.
Property passes in on multiple bids
If the property has been passed-in on multiple bids, the gap between the price it’s been passed in at, and the reserve price, is likely to be smaller.
It pays to remain vigilant, as even though others have bowed out of the bidding process, some may get a pang of remorse and suddenly decide they are willing to pay more.
If you’ve declined the vendor’s reserve, agents may go back to them – significantly hindering your negotiating position.
What price was the property passed in at?
If a property passes in at the bottom end of the agent’s quote range, you need to consider whether the quote range was realistic, or perhaps a little too bullish.
If the vendor was in fact overly aggressive, you’re in a strong negotiating position. Particularly, if you’re the only one left standing and there has been weak competition along the journey.
If the property passes in, around the midpoint of the quote, the first question to ask is, how did we get here?
Were multiple parties pushing the bidding higher before pulling out? Or did the auctioneer introduce a vendor bid to push you up?
If it’s the former, and there’s been genuine bidding, it’s an indication of true market value.
Conversely, if bidders held back as the price crept up, it’s likely the quote was too high.
Additionally, there may be some aspects of the property that the market doesn’t value. Again, this puts you in a reasonably strong negotiating position.
Crucially, if the property was passed in off the back of an aggressive vendor bid, it’s a good indication that the auctioneer has limited buyer interest in the crowd.
Thus, the auctioneer is trying to begin a prospective negotiation from a higher base, to bridge the gap between the vendor’s reserve and the negotiation starting point. Again, this places you in a solid position.
Upper end & above
If the property passed in after competitive bidding at the upper end, or even above the quote range, your negotiations may require a little more cut and thrust.
The vendor has more than likely had a successful campaign which attracted multiple bidders.
As the quote range has been reached or surpassed, it provides a good measure of market value and interest levels.
As a buyer, you can declare that as fair market value has been reached, your offer should be accepted at its current level.
You might still need to move a little. However, you can quite rightly ask the agent why you’re being asked for more, when you’re at the top of the quote range and also above where others have dropped out.
Remain outside during negotiations
When a property passes in to you, the agent may invite you to conduct the negotiations inside – politely decline.
You can retain more privacy outside, and phone a family member or friend for advice, without prying ears.
It also allows you to see who remains after the auction. Are the other bidders still interested, or have they driven off? Did the bulk of the crowd merely consist of curious neighbours, who have now returned home?
If no one remains, you can quite rightly say to the auctioneer, there’s no one else here, you need to strongly consider my offer.
Ask for the reserve price
Ask for the reserve price. But bear in mind it has probably been inflated as the agent seeks to build some fat into it to achieve the vendor’s ideal price. Incorporate that understanding into your negotiations and any offer increases.
Understanding the quote price
Leveraging the comparable sales in the agent’s statement of information can be a helpful negotiating tool, particularly if the sales provided to justify the advertised quote range were a good deal lower than the value of the prospective home.
Other negotiation tactics
While price is obviously the major factor, it’s not the only tool you have at your disposal.
If a vendor wants a longer settlement, then ceding ground on the settlement terms may mean you can hold firmer on your price.
Regarding the negotiation pace, you can drag it out by applying the ‘drip, drip, drip’ offer tactic, and grind out a price in your favour.
However, sometimes it may pay to give a strong offer early. It shows good faith and allows you to crunch and grind a little bit harder towards the end of the negotiation.
High stakes brinkmanship is always a risky strategy. If you threaten to walk away, you need to be prepared to follow through.
Coming back cap in hand, after an empty threat, will leave you in a weakened negotiating position.
Take home message
While this spring market won’t have the same frenzied competition as last year’s, top quality investment properties rarely come at bargain prices.
Be prepared to pay fair value, but ensure you secure the optimum price with the knowledge and know-how to succeed, should the property be passed-in.