How to negotiate with the agent when the home you want passes in at auction

Auction clearance rates in Australia’s biggest property markets are hovering in the 40 to 50 per cent range, meaning about half of properties are passing in at auction.

Buyers may be nervous to raise their hand, but they are also confident they can negotiate later or buy something similar with ease.

More properties passing in gives buyers more opportunities to go inside and negotiate directly with the agent, but buyers need to prepare for this situation to achieve the best result.

What happens when a property passes in?

At an auction, if the property doesn’t meet the reserve,  it “passes in”. This is a scenario that’s really of no benefit to either party, as the vendor doesn’t get what they’re asking for and the price is too high for the buyer.

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

This can be a daunting situation for a buyer. They go from a very public and transparent process outside, to a one-on-one negotiation inside with someone does this for a living, week in, week out and is highly motivated by a percentage-based commission to get the highest possible price for the vendor.

How to avoid falling for the agent’s tricks

Always remember, the agent is acting on behalf of the vendor, not the buyer. It’s their job to get the best price for the vendor and many of them do it very, very well.

However convincing the agent appears, you can bet your deposit they are highly skilled at emotion-based selling and will employ tactics to make you believe they are giving you a great deal that won’t come again. But it likely will.

If you find yourself in this situation, remember that you are the highest bidder for a property which, in most cases, has been on the market for more than 30 days. This is good leverage.

Many properties in the current climate will still sell post-auction, and all parties are motivated to get a deal done on auction day. But if you try and be too clever, the vendor may take it to private sale instead.

The agent will not respond to arrogance, especially since this is their domain. But if you know the market, you’ll know where there is a deal to be made.

Post-auction negotiation strategies for buyers

These tips can sharpen your negotiating skills to get the best outcome possible when :

• Do your homework.  Make sure you know the most recent sales in the area. The agent will reel off properties and sale prices to make you feel like this one is of equivalent value, even though it just passed in. You need to know whether they are comparable properties, and by knowing the details you give yourself a better chance of influencing the outcome. Don’t be fooled if the agent quotes the sale price of a house just a few doors away. That property is not this property.
• Ask lots of questions. What’s the vendor seeking? Why do you think it passed in? Who is the vendor? Why are they selling? Have they already bought? Asking questions gives you some control of the conversation and it gives you an understanding of the vendor’s situation. Asking the agent why it passed in forces them to accept the situation. 
• Hold your ground. The agent will do their best to make you wait while they speak to the vendor after each of your offers. Don’t be worried when they come back shaking their head. Keep digging for the price that will get it done, as close to what the property passed in at as possible. Ideally you haven’t disclosed too much information to the agent through the campaign and they won’t know your budget.
• Know your limit. Finally, don’t be bullied or pressured into going above your budget. If you have to, walk away.

Julian Muldoon is the director of 1Group Property Advisory.