Passed In Discounts

Urgency plays an important role in negotiations. You feel urgency as a buyer when an agent says interest in a property is high – I don’t want to miss out on this one!! On the flipside, as a vendor you feel it when your property sits on the market for months – I just want to sell!!

An auction campaign is designed to galvanize interest from buyers towards a specific day, so that anticipation builds and buyers face off in an open way. Auctions are very effective at creating urgency on the part of buyers.

It’s very important as a vendor to set a realistic reserve price, so that you can capitalize on the competitive environment created over the course of a 4-week campaign. Of course there are times where it makes sense to pass in the property (for example, when your agent knows the main buyer’s budget from previous dealings), but you need to understand the potential risks of post-auction selling.

This graph shows that, on average, vendors accept a 2.1% discount on their reserve price when selling within one week of a property being passed in. As more time lapses after an auction, buyer interest thins. The average discount required to sell increases the longer the property languishes on the market.

In many cases, the best course of action after a pass in involves entering into serious negotiations with the highest bidder. The purchaser still feels a degree of urgency, having seen the number of parties outside the home, and you as a vendor can negotiate from a position of relative strength.

Where this doesn’t work, vendors often choose a private sale method, with a clear asking price. Depending on the auction campaign, interest in the property may still exist, and several buyers can come out of the woodwork once a definitive price is set.

As a vendor, it’s important to quickly recognize what the market is saying about price, and make a tough decision early about the discount you’d be willing to accept.

If too much time lapses, the urgency felt by purchasers will dissipate, and your urgency to sell – and move on with life – will dominate your decision.

Andrew Stone, Director of Property Analytics & Buyer Advocacy