Everything Sydney-siders need to know about properties 'passing in' at auction

Following an auction campaign, the phrase a vendor doesn’t want to hear is ‘passed in’. The terminology is used to describe a home that fails to meet the reserve price at auction and does not sell under the hammer.

Having multiple bidders who want to purchase the home is the dream scenario for vendors. In Sydney, this has been the case for many years, but lately, market conditions are swinging in favour of buyers.

Sydney auction activity has been elevated this year. Over the first 10 months of 2017, almost 29,000 properties went under the hammer, jumping by 25.4 per cent from the same period in 2016.

Buyers may now find they have the luxury of being spoilt for choice. As a result of increasing auction volumes, vendors are faced with a greater chance of their home passing in.

The opposite trend occurred last year, with every month in 2016 (excluding April and December) experiencing a lower volume of auction activity when compared with 2015. Total auction numbers for 2016 were 22.1 per cent lower than those for 2015.

February produced the highest auction result this year, with a clearance rate of 77.5 per cent, but since then clearance rates have progressively declined. May 2017 marked a turning point, when clearance rates dropped below the monthly results achieved in 2016.

October 2017 produced one of the lowest monthly results of the year at 58 per cent, vastly lower than the 76.3 per cent in October 2016.

The benchmark for house price inflation is a 60 per cent clearance rate. Below 60 per cent suggests that the market could have lower demand, and price moderation could ensue.

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The fact that prices moderated over the September quarter is not a surprise given the dip in clearance rates.

Sydney’s auction results continued to fall throughout November. The second Saturday of the month notched a clearance rate of 57 per cent and the third scored 62.4 per cent. Comparatively, the third Saturday in November 2016 achieved a clearance rate of 73.3 per cent.

Sellers need to be pragmatic in a shifting market. Properties priced to the current setting should still fare well at auction.

Vendor emotions may run high if the auctioneer passes in their home, but all is not lost, because often the agent’s negotiating skills can produce a sale before the day is out.

From a seller’s perspective, it is important to re-evaluate price expectations once a home passes in with no bidder making an offer.

Dr Nicola Powell is a data scientist at Domain Group. Tweet your questions to @DocNicolaPowell.