A property is passed in at auction for $800,000 with a registered bidder offering $820,000 immediately after. The vendor's reserve was $850,000. What are the vendor's obligations?
Correct Answer
C) Has no obligation to accept or negotiate with any bidder
When a property is passed in at auction, the vendor has no legal obligation to accept any offers, regardless of the amount. The vendor can choose to negotiate, set new terms, or withdraw the property from sale entirely.
Why This Is the Correct Answer
When a property is passed in, no contract has formed. The vendor may negotiate with anyone, accept or decline any offer, or withdraw the property.
Why the Other Options Are Wrong
Option A: Must accept the $820,000 offer, because it is above the passed-in bid
Being above the passed-in bid creates no obligation. The vendor may decline any offer after a pass-in.
Option B: Must negotiate in good faith with the bidder, but may decline offers below reserve
There is no legal duty to negotiate after a pass-in. Offering the highest bidder the first chance is common practice, not a legal requirement.
Option D: Must accept any offer made within 24 hours after the auction closes
No 24-hour acceptance rule exists. After a pass-in the vendor is free to accept, decline or withdraw.
Deep Analysis of This Sale Purchase Question
This question tests understanding of vendor rights and obligations following a passed-in auction under New Zealand property law. When a property is passed in at auction, it means no bidder met the vendor's reserve price, and the auction process has concluded without a sale. At this point, the vendor regains complete control over their property and sale process. The vendor is not bound by any auction conditions or obligations to negotiate with bidders. This principle protects vendor autonomy and prevents forced sales below desired prices. The distinction between auction sales and post-auction negotiations is crucial - different rules apply. Understanding this helps agents advise vendors correctly about their options after unsuccessful auctions, including whether to negotiate, relist, or withdraw from market entirely.
Background Knowledge for Sale Purchase
In New Zealand, auctions are governed by specific legal frameworks where vendors set reserve prices - minimum acceptable amounts. If no bidder meets this reserve, the property is 'passed in' and the auction concludes without sale. Post-auction, normal sale and purchase rules apply, not auction conditions. Vendors regain full control and can negotiate new terms, change conditions, or withdraw entirely. This protects vendor rights while allowing market-driven pricing. The Real Estate Agents Act 2008 requires agents to understand these distinctions to properly advise clients about post-auction options and obligations.
Memory Technique
PASS = Property Auction Sale Stops. When a property is 'passed in' at auction, remember that everything STOPS - all auction obligations, requirements, and processes end. The vendor gets a clean slate to start fresh with complete freedom of choice.
When you see 'passed in at auction' in exam questions, immediately think 'PASS = everything stops' and look for the answer that gives the vendor complete freedom and no obligations to anyone.
Exam Tip for Sale Purchase
Key phrase: 'passed in at auction' = vendor has complete freedom. Look for answers emphasizing 'no obligation' or 'vendor's choice.' Avoid options suggesting mandatory negotiations or acceptance requirements.
Real World Application in Sale Purchase
A vendor sets a $900,000 reserve for their Auckland property but highest bid reaches only $850,000, so it's passed in. Immediately after, three bidders approach with offers of $860,000, $870,000, and $880,000. The vendor can choose to negotiate with one, all, or none of these bidders. They might decide to relist with a lower reserve, accept one offer, or withdraw from sale entirely to renovate first. The agent must explain these options without pressuring any particular choice.
Common Mistakes to Avoid on Sale Purchase Questions
- •Thinking passed-in creates obligation to negotiate with highest bidder
- •Confusing auction rules with post-auction sale and purchase rules
- •Believing vendors must accept offers above the passed-in price
Related Topics & Key Terms
Key Terms:
More Sale Purchase Questions
A property is sold at auction for $850,000 with a 10% deposit required. The successful bidder has concerns about the LIM report after the auction. What is their legal position?
What is the primary purpose of a LIM (Land Information Memorandum) in the sale and purchase process?
What deposit is most commonly agreed in New Zealand residential sale and purchase agreements?
When does an Agreement for Sale and Purchase become unconditional?
In a property auction, when is the sale considered complete?
- → How is the settlement date set in a New Zealand residential sale and purchase?
- → What typically happens to the deposit when an unconditional sale and purchase agreement is signed?
- → During settlement, what document transfers legal ownership of the property from vendor to purchaser?
- → A property is passed in at auction for $800,000 with a reserve price of $850,000. The highest bidder approaches the vendor immediately after. Which statement is most accurate about the subsequent negotiation?
- → When does an Agreement for Sale and Purchase become unconditional if it contains a finance condition with a 10 working day timeframe?
- → What is the typical deposit amount required immediately after a successful auction bid in New Zealand?
- → Under the standard TLANZ/REINZ Agreement for Sale and Purchase, who is typically responsible for paying rates from the settlement date?
- → At an auction, the reserve is $800,000 but bidding stalls at $750,000. The vendor then negotiates with the highest bidder and they agree to sell at $780,000, signing on the auction terms with no conditions. What type of sale is this?
- → A purchaser has included a finance condition with a 10 working day deadline. On day 8, they receive loan pre-approval but final approval is pending. What should they do?
- → What happens if a purchaser fails to pay the deposit by the specified deadline in the Agreement for Sale and Purchase?
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A property is passed in at auction for $800,000 with a reserve price of $850,000. The highest bidder approaches the vendor immediately after. Which statement is most accurate about the subsequent negotiation?