What Does Passed In At Auction Mean?

When a property is auctioned, the seller places a reserve on it, which is the minimum price they will accept. Bidding usually starts well below the reserve, but the auctioneer will declare the property ‘on the market’ once the bidding reaches that threshold. However, if this doesn’t happen, the auctioneer will call for more bids. If nobody bites, the property is ‘passed in’ — meaning the auction did not yield the minimum acceptable price the seller was willing to accept.

Options when a property is passed in at auctions

The seller has three options once the auctioneer declares the property passed in.

Negotiate with the highest bidder

The selling agent will invite the person who placed the last bid to negotiate with the seller to see if they can meet in the middle and agree on a sale price. There is no set timeframe for such negotiations, which may continue for days.

It’s good news for the buyer when a property is passed in because they will have a stronger negotiating position. Then, they can potentially snare the property for a good price — especially if the vendor needs a quick sale and is flexible.

Negotiations need not be a disaster for the seller — especially if the reserve was unrealistically high — because they can still make a deal.

If both parties can’t agree, the agent may ask the second-highest bidder to negotiate if they so desire.

Relist the property

If unsatisfied with sub-reserve offers, the seller may relist the property for a future auction or via private sale with the same real estate agent. Alternatively, they could work with a new agent if they weren’t happy with their current agent’s performance.

However, relisting involves marketing and advertising expenses, so it may not be exceptionally appealing to many sellers. Relisting via private sale could also mean the property remains on the market for months if there’s a dearth of buyers out there.

Withdraw from the market

Finally, if negotiations are unsuccessful and the task of relisting is too much, the seller may simply decide to take the property off the market.

If the failure to sell was due to the state of the property or current market conditions, it may be wise to wait until the overall health of the market improves. Plus, that time may be better spent making much-needed renovations to improve the property.

» MORE: 10 questions to ask a real estate agent when selling

Strategies to avoid being passed in at auction

There are steps that the seller can take to avoid the property being passed in from the start.

Set a realistic reserve

The most obvious strategy is to set a realistic reserve price. This reserve should align with market expectations and be comparable to recent sales for similar properties in the same location.

Of course, this is easier said than done, and many factors could complicate the scenario. For example, a property may have plenty of unique features, so finding a point of comparison could be difficult. Or, the property could be in an area that’s only seen a few recent auctions. The expertise of the selling agent can be invaluable when confronting these types of challenges.

As the seller, you have the final say as to the reserve price on your property. Still, the agent has some responsibility to make the reserve as realistic as possible in current market conditions.

» MORE: How does property valuation work?

Make sure the time is right

Another big determining factor is timing. As a seller, you’ll want to try to sell when the property market appears receptive. You’ll also want to make sure the property is ready and in a state suitable for an auction.

Once again, the agent should be able to make recommendations based on these determinants.

Consider clearance rates

Finally, before putting a property up for auction, your agent will look at auction clearance rates in your region.

A clearance rate denotes the percentage of properties that have sold at auction, usually over a weekend, and clearance rates are widely viewed as a barometer of the overall health of the property market. Generally, a clearance rate of 60% or more is considered strong, whereas anything under 60% typically reflects a buyer’s market.

Auction clearance rates across Australia in 2024 have so far been strong, based on auction results from Domain. This seems to indicate a robust property sector with high demand. However, this is not uniform across the country, and the best results are in major metropolitan areas such as Sydney and Melbourne.