The ‘rights’ of the highest bidder at an auction

The ‘rights’ of the highest bidder at an auction

With auctions becoming more and more popular in Sydney and Melbourne, I thought I’d offer my advice on the “rights” of the highest bidder when a property is passed in.

Despite what some auctioneers want you to think the highest bidder doesn’t have any official rights to exclusively negotiate with the vendor first.  Many inexperienced bidders get anxious about not being the highest bidder for fear they will ‘miss out’ on a chance to buy the property altogether should the property pass in. Promoting the ‘rights’ of the highest bidder is simply a tactic by the auctioneer to get more money out of potential buyers during the auction in the hope to avoid a property being passed in.

Typically, when an auction stalls the auctioneer will encourage the bidders to put in another bid so they can be the highest bidder and secure the right to negotiate with the vendor. The auctioneer might say ‘We’re close to the reserve price but we’re going to pass the property in if we don’t have any further bids and we will be negotiating with the highest bidder’ and if that’s not you, you may miss out.

What most buyers don’t realise is that even if they are not the highest bidder they can still negotiate to buy the property after it has been passed in. Buyers who don’t want to bid until the property is on the market need to let the selling agent know immediately after the property passes in that they are interested and would like to be included in the post-auction negotiations.

But be careful. You don’t want to end up paying more in post auction negotiations than if you’d bought the property under auction conditions which can easily happen. Generally I recommend inexperienced buyers keep bidding at auction (not against themselves of course and as long as they are confident they are bidding against a genuine buyer) until they purchase or the bid reaches their well-researched pre-determined limit.

Once the post-auction negotiations begin it’s a whole new ball game as there’s plenty of room for negotiation games and tactics to be deployed by the selling agent as transparency is diminished.  You won’t know what other buyers may or may not have offered because discussions are now held in private rather than in a public forum.  

So it’s best to buy under auction conditions without bidding against yourself unless you’re certain you’re the only buyer or are very confident and experienced in post auction negotiations. 

Categories: Auctions