For all potential property buyers in Melbourne and Sydney, auctions are one of the main platforms to buy and sell property.  Some see this as a bitter pill to swallow, others relish it.

The main positives are the complete transparency of the selling process and the assured timeframe you have in which to get prepared to purchase.
The main negatives are the emotion and nerves that can take hold on auction day and in some cases for those who haven’t begun the finance pre-approval process, a deadline that is too tight particularly with lenders intense rigmarole to give pre-approval.

As professional Buyer’s Advocates, we bid at auction week after week and feel extremely comfortable with the process.  We have completed thorough due diligence on the property have a good idea of its value and in most cases know the agent and their auctioneering style.  But, for people bidding for themselves, it can strike fear in the heart of even the most confident.  

Currently in this softer market, we are seeing more properties pass in on either a genuine bid or a vendor bid.  A vendor bid is a bid placed by the auctioneer on behalf of the vendor to get the property to a higher price platform on which to negotiate from if the property passes in.  If the property passes in on a genuine bid from a potential purchaser, then that bidder has the sole right to exclusively negotiate at the vendor’s reserve.  If the bidder declines the vendor’s reserve, then the agents can begin talks with any other parties that have shown interest.  This is a critical time if the property was passed in to you.  

Typically, the scenario that will follow plays out like this;

The agent will advise you of the vendor’s reserve, but bear in mind that in 99% of cases this amount is inflated to allow for negotiations, so it is wise not to accept this offer even if you think it is a good price.  Your next move should be to counter offer an amount that you would be extremely happy to buy the property at, your low ball offer if you like.  Be a little wary not to go too low and offend the vendor which can inhibit the negotiation process, a fair but low offer is ideal.

During the process, the trick is to know comparable properties that have sold in the area, the agent definitely will, so having market knowledge will show you have done your homework and it will give you confidence when negotiating.  In the backwards and forwards of the negotiation that will play out over the coming minutes, a good trick to remember is to not be forthcoming with a price if the vendor is not giving you a figure to accept or decline.  The agent will ask you a leading question like ‘OK if you won’t agree to that price, then what will you pay?’.  The best way to handle this question rather than show your monetary hand is to ask something like ‘No, I won’t agree to that price, but what will the vendor take?’.  This puts the ball back in the vendor’s court to give you another figure from which to negotiate.  

In most cases, the negotiation will fall somewhere between the initial inflated reserve and the low ball offer you put forward at the beginning of the process.  This tends to be a win/win for both parties.

Auction pass in negotiations is a skill that is mastered over time, so unfortunately for most, a skill they won’t have the opportunity to master. 

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