When the bidding at an auction falls short of the reserve price, the property is 'passed in’ and the prospective buyer, vendor and agent steel for an intense round of negotiations.
What happens if you're a buyer
The first right to negotiate goes to the prospective buyer who places the highest bid at auction. If that's you, the vendor's agent will invite you inside the property to find out what you're prepared to offer to seal the deal.
Here's what you should know:
- Ask to be told the reserve price.
It’s always preferable to go into a negotiation armed with as much information as possible. Knowing where the reserve sits within your pre-determined price range will help you work out how much wriggle room you have to up your price. Of course, the vendor may choose not to disclose the reserve price.
- You don't have to match the vendor’s counteroffer
There’s a good chance the agent will ask you to meet the vendor halfway, but you’re under no obligation to do so. The agent might offer a $20,000 drop in reserve price for example, but it doesn’t mean you have to raise your offer by an equal increment. You’re under no obligation to increase your offer, and you’re entitled to walk away at any time if the negotiation isn’t to your liking.
- Remember you’re in charge
You might be desperate to buy the property, but don’t let on. The seller and real estate agent will be keen to sell the property on auction day, so the ball is in your court. Don’t fall for intimidation tactics like being told there is a queue of people waiting outside the home to take your place at the negotiation table. When you hear the reserve price, never let on where it sits in relation to your budget. Be confident and don't give anything away in body language to suggest you’re a pushover.
- Know the value of similar properties
Knowledge is a vital negotiating tool. If you know enough about auction results and sold prices of comparable properties, you can call an agent’s bluff by telling them exactly how much this property is worth according to its market value. Don’t rely solely on online research, visit some open houses to see for yourself what to expect from properties in your price range.
What happens if you're a seller
Your agent will negotiate on your behalf with the highest bidder to try and get as close as possible to your reserve price. If this bidder isn’t prepared to budge on price, negotiation may be opened up to other interested parties.
Here's what you should know:
- An agent skilled at negotiating is a must
A real estate agent’s ability to negotiate a good deal can make a tangible difference to the sale price. Your agent should be able to negotiate from a position of confidence, having already done their research on potential buyers and the local property market.
- You don’t have to disclose the reserve price
Prospective buyers will want to know the reserve price, but there is no onus on sellers to tell. Talk with your agent about the wisdom of revealing your hand, depending on whether this adds or detracts from the negotiations.
- Be sure your price is realistic
Don’t make the mistake of having your property pass in because the reserve has been set too high. It’s crucial to have realistic price expectations based on research of similar properties sold in the last few months. Going back any further than three months is not advisable due to fluctuations in the market.
- Your property may not sell on auction day
When deciding how much you’re prepared to lower your offer, take into account the consequences of not selling on auction day. Your property may well go in the weeks following an auction, but you’ll need to consider how much it will cost to re-list the property for sale.
If you’re confident that you haven’t overstated the price, look at whether poor presentation or poor marketing may have been to blame.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.