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?
Correct Answer
B) A fresh negotiation begins, with no binding obligation carried over from the auction
When a property is passed in at auction, any subsequent negotiation is treated as a separate transaction with no binding obligations from the auction process. The vendor is free to negotiate with any party on any terms, and the previous bidding amounts have no legal significance in the new negotiation.
Why This Is the Correct Answer
A pass-in means no contract was formed at the auction. Any later dealing is a fresh private negotiation, and neither party is bound until an agreement is signed.
Why the Other Options Are Wrong
Option A: The vendor must sell to the highest bidder at the passed-in bid
A bid below reserve does not bind the vendor. The property was passed in because the reserve was not met.
Option C: The vendor may negotiate only with the highest bidder, and only for 24 hours
Giving the highest bidder the first opportunity is common practice, but the vendor is not legally limited to that bidder or to 24 hours.
Option D: The reserve price becomes the lowest price the vendor is allowed to accept
The reserve is the vendor's own confidential instruction to the auctioneer. It does not bind the vendor in later negotiations.
Deep Analysis of This Sale Purchase Question
At an auction, each bid is an offer and the fall of the hammer is the auctioneer's acceptance on the vendor's behalf. If the reserve is not met, the auctioneer does not accept and the property is passed in, so no contract forms. Any later negotiation, with the highest bidder or anyone else, is a new private-treaty negotiation. The vendor can set new terms, including conditions, and the reserve and earlier bids have no binding effect.
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?
- → 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?
- → Which document sets the terms that will bind the successful bidder, and so should be available for bidders to inspect before the auction begins?
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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?
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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?