Property's Bargain Zone

Properties passed in at auction have long attracted investors looking for a bargain. And with good reason: they often wind up being sold for less than the seller had expected and can offer property buyers strategic advantages that are not available at a public auction. For access to Eureka Report’s database of passed-in properties, click here and enter the postcode of your desired suburb.

Properties are passed in every weekend in every state, more so in Victoria and New South Wales, where auctions are a more common method of sale. In contrast, in Queensland, only about 5% of properties are sold by auction. In the inner suburbs of Melbourne and Sydney as much as 80% of property sales are done by auction.

In practice, a property is passed in when the auction has not gone as well as the vendor has hoped; bidders have failed to reach the reserve, or minimum selling price. But that is not the end of the sale process.

Negotiations then move behind closed doors. The bidder who had made the highest offer enters negotiations with the vendor, with the agent acting as an intermediary.

Compromises are sought from both parties and sometimes an agreement is reached quickly and the property is sold. If the seller fails to strike a deal with the highest bidder or any other interested party, the property is declared as being passed in.

Monique Wakelin, co-founder of Wakelin Property Advisory, explains: “A property that has been passed in lets the investor know that the vendor’s expectations of what the property is worth has not been met by the marketplace, that a market for the property doesn’t exist at the price specified by the vendor.”

By the time the property is declared as passed in, most of the vendor’s cards are on the table. The investor can approach the purchase of the property objectively, armed with important details that were not previously available '” such as a better idea of the reserve price. Additionally, they are safe in the knowledge that the vendor has had to seriously reconsider their expectations.

Louis Christopher, research director of Australian Property Monitors, suggests: “I’ve been successful in obtaining passed-in property before. Often when a property is passed in you are in possession of vital information, such as the reserve and the bid that it was passed in at. This gives you the upper hand in negotiations.”

Each Wednesday, Eureka Report will add newly passed in properties to our database. You can search for these properties by entering the postcodes of suburbs you are interested in. It will then display a list of passed-in properties in the area specified. Additionally it will display the type of bid that was passed in and the amount of that bid.

Clearance rates '” the ratio of properties offered for auction and those sold '” are a good indication of the forces of supply and demand. In general, clearance rates of 65–75% are a good indication of a healthy market. A lower figure indicates either lessening demand or an oversupply, which can tilt the price in favour of the property buyer.

It is worth understanding that seasonal factors can affect clearance rates. The peak spring/summer season sees large numbers of properties going to market. A low clearance rate may simply indicate a high number of properties are in the market; high clearance rates in late summer and autumn may simply be a reflection of the lack of property for sale.

Published clearance rates remain only a general guide to the health of the property market. It has been widely reported that real estate agents can be reluctant to report auctions where attempts to sell property have not been successful; as a result clearance rates, especially in a slow market, could be lower than the official figures indicate.

There are small statewide variations on just how properties are passed in. In South Australia, properties that have been passed in yet settled before midnight forego the cooling off periods available in private sales. In Queensland, an announcement may be made prior to the auction that if the property is passed in the highest bidder does not have an exclusive right to negotiate. In Western Australia, the vendor has the right to refuse a bid below, at or above the reserve.

All things being equal, it is clear that passed-in properties offer investors distinct advantages. You enter negotiations with a better idea of the vendor’s reserve and knowing it has been rejected by the market. With our database, you also know the highest and the type of bid which the property was passed in at.

For investors who are prepared to approach the purchase of property methodically and test their nerves against those of the vendor, passed-in properties are the opportunity you have been waiting for.