When The Hammer Fails – What To Do When Your Home Is Passed In At Auction
Auction day can be one of the most emotional and unnerving moments of any vendor’s life. As potential buyers and spectators gather at the auction site, it’s hard not to imagine both the best and worst case scenarios. The auction begins and although there are multiple bidders, they are not quite hitting the mark. The auctioneer calls for final bids, of which you hope there will be one last battle to get you closer to your dream number, then you hear the dreaded words… Sorry Ladies and Gentlemen, we are going to pass this in today.
Aside from the initial overwhelming feeling of disappointment and fret, there are often many factors at play in this situation, some of which you can control eg. setting a realistic reserve, and others that you can’t, such as market conditions.
For Sydney alone, auction results from last weekend as reported by Domain, indicated that Sydney auction clearance rates tumbled to 56.4 per cent on Saturday. This is the second time in a fortnight the crucial market measure has fallen below 60 per cent, with experts claiming that buyers are too well educated now to pay ridiculous prices; and subdued market conditions are continuing to weigh heavily on Sydney’s auction performance.
So what does it mean when your property passes in at auction and what outcomes can you expect?
Time To Review
Properties pass in for many reasons, but the main reasons are because there is not enough buyer interest in your property due to lack of marketing or follow-up by the agent, poor presentation of the property or an unrealistic reserve has been set, the latter being the most common.
This is particularly common of recent as people have become accustomed to the growth that has been noted over the last three years and setting reserves accordingly with the hope that the market is still in a growth phase. However, results this year in comparison the results posted at the same time last year indicate otherwise.
According to Huss Saad, Director of Village Real Estate, realistic reserves are what lead to successful auctions and provide opportunity for competition amongst buyers.
A typical auction campaign is three weeks, sometimes four, during which your agent should have a good idea of what they think your home is worth. That market insight should influence setting the reserve on auction day. If a vendor sets the reserve too high, that can stunt bidding and an auction will fail.
What Happens When My Property Passes In?
Firstly remember all is not lost! If bidding does fail to meet the reserve, it doesn’t mean that your home will not sell. If the owner and agent work together and the vendor is reasonable, there should be opportunity to sell within the next week or two.
In most instances, the highest bidder has the first right to negotiate a price with the agent acting on behalf of the vendor. If a price cannot be agreed on, then the agent then has the right to negotiate with the other potential buyers.
What If We Can’t Reach An Agreement?
In the unfortunate event that none of the bidders meet the vendor’s expectations immediately after the auction, the property can then be listed for private sale.
However, the agent will need to conduct a full review of the campaign to determine what factors led to the property not selling and implement a new strategy to mitigate these factors. However according to Mr Saad, in almost all cases, “It is the price”.
It is also important for agents to re-launch the property on the market like it was entirely new again ie. Introducing an entirely new marketing campaign, keeping the pressure on and database active.
So How Do I Set A Realistic Price Without Totally Compromising My Expectations?
Research! It is important as a vendor to stay abreast of current market conditions. This includes everything from monitoring tighter lending regulations, to stats in both your suburb and city relating to sale results.
But most importantly, it pays to be reasonable, as unrealistic vendor expectations can be problematic throughout a campaign, and more often than not will lead to an unsuccessful campaign because underquoting laws mean properties can’t be advertised for lower than the vendor’s asking price. You may get lots of groups through the property, but those people coming through are coming in at a higher price, so they will be expecting a better property.
This above fact is particularly important these days as with the influx of property technology emerging on the market allowing people to view properties via their smartphones, you potentially won’t event see groups through in the future if your property has been priced incorrectly as the potential buyer will have the opportunity to view multiple properties online via a live inspection platform such as Home Live prior to inspecting them physically, allowing them to compare your property immediately with several others in the same category.
However, this also falls with the agent whose job is to manage vendor’s expectations especially when they are out of line with current market conditions.
At the end of the day, the more upfront the owner and agent are with each other from the get go, the more likely you are to achieve a successful result.