Property passed in? Here’s your chance

Some of the year’s best buying opportunities for investors and home buyers will present themselves over the next two to three weeks as selling agents rush to clear an exceptionally high continuing level of property supply.

Normally, the number of properties listed for sale would be peaking next weekend, before dropping away dramatically in the lead-up to Christmas and staying low until the market reopens in the last week of January.

Not this year. We are seeing high supply levels continuing through to the week before Christmas. Indeed, in the extremely buoyant and highly sought-after Melbourne market, agents are listing twilight weekday auctions in an effort to clear volume.

While there is still high pent-up buyer demand – particularly from expatriate and interstate buyers who fear missing out on prime assets as prices continue to rise – the approach of the Christmas break will cause some to put their plans on hold until the new year. The result is that more properties could be passed in at auction.

The pass-in situation presents some truly golden opportunities, but also requires an understanding of the negotiating skills a buyer needs to take control of the process in what would normally be a seller’s market. The buyer can’t exercise the same level of control before or during the actual bidding at an auction as they can once a pass-in occurs. How a buyer then conducts the deal requires a combination of technical know-how and the right psychology and here’s how to go about it:

Get to know the selling agent. Take the time to establish a relationship with the selling agents prior to attending auctions. If the pass-in situation then arises, that agent will be more willing to negotiate on the basis that you are a genuine buyer.

Hold the highest bid. If attending an auction for a preferred property and it looks like being passed in because of slow or low bidding, ensure you are holding the highest bid. This gives you the advantage of greater control in continuing with any post-auction negotiations.

Don’t lose track of the crowd. Once a property has been passed in, don’t let the selling agent drag you inside to conduct further negotiations. Stay in a position where you can see what other parties may be doing. Even if they weren’t prepared to bid higher during the auction, some prospective buyers may see a negotiating opportunity after the event. Be aware of any “unforeseen” competition rather than take the agent’s word that they are receiving higher offers.

Challenge the reserve price. This will form the basis of any further offers the buyer makes. Determine what the reserve price is with the selling agent, challenge it and hesitate before making further offers if it seems too high. Keep your cool and tell the agent that the rest of the market was not prepared to bid higher and therefore, why should you pay a considerably higher reserve price. Be firm, but never antagonistic in asking the agent to justify the reserve with supporting evidence such as comparable sales figures.

Don’t just keep offering more. After each offer made post-auction, wait for a response rather than automatically raising it. If the selling agent gets the impression a buyer is willing to keep upping the ante, they will keep pushing the price higher. Make sure you seek a counter-offer before you increase your offer!

Weigh up the performance potential of the property. Take into account how long it has taken to find a particular property and if it meets all the key capital growth and selection criteria. Understand what the market is doing in regard to supply and demand and also bear in mind that the continuing high clearance rates indicate a very strong opening for the 2008 property market, particularly in the most sought after precincts.

Confirm terms and conditions. Confirm that any terms and conditions negotiated prior to an auction still stand. Once a property is passed in these terms and conditions can be varied.

Understand the vendor’s motivation. A vendor is often placed in a more vulnerable position when a property is passed-in at this time of year. If the vendor has already bought another property then they face the prospect of a long wait until the property can be remarketed for an optimal outcome when the 2008 market opens. In this scenario, the vendor is more likely to be “deal driven” and to accept a more realistic price.

Buy on the longest settlement possible. This is especially important if you are selling another property. Even though the 2008 market is likely to open strongly at the end of January, by the time a property is marketed for auction, it won’t be sold at auction until mid to late February.

The other advantage of a long settlement is that if you have bought a prime asset for a good price in this pre-Christmas market, it could have made a considerable capital gain by the time you actually pay for it several months into the new year.

The Eureka Report