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Prospective buyers visiting auctions or looking at the market may have heard the term “passed in” before.

The quick summary is that this means that the reserve price has not been met and therefore the property has not managed to sell at the auction.

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This does not necessarily mean that the property doesn’t sell on the day – often, the highest bidder will be taken inside for further negotiations and the property may sell straight afterwards.

Century 21 notes that it can be frustrating for the vendor to have a property passed in at auction and it can be emotionally charged. They note that it is always a potential outcome and to ensure you have chosen an agent who will be able to best negotiate on your behalf if you are unsuccessful with selling during the auction.

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“Many prospective buyers will even increase their offering from what was bid at auction in order to secure the property, sometimes reaching the reserve price,” they advise.

In some states, the highest bidder has that first right of negotiation.

If the property passes in on a ‘vendor bid’ this means that the vendor has used their hand and no other bid was made past theirs.

If you don’t know what a vendor bid is, you <a href="/expert-insights/buying/31163-what-is-a-vendor-bid-property-investment-terms-explained" target="_blank">can read our explanation here</a>.

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If you’re the highest bidder and it is passed in, there are some things you can do to ensure it swings in your favour.

Firstly, understand that it doesn’t mean the property is a dud because it has passed in. The auction could have been lacklustre, and there could be any number of things causing people to keep their hands in their pockets on that day. 

You can read <a href="/expert-insights/buying/13460-what-to-do-if-you-are-the-highest-bidder-at-an-auction-that-is-passed-in" target="_blank">this guide from buyer’s agent Warwick Brookes</a> on what you’re supposed to do if you are the person with the first right to negotiation.

“Don’t be frightened to say things like, 'This is already at the upper end of what I think the property is worth' even if that is not the case. If there are no other buyers in sight and everybody has left except yourself, then minimise the amount you are willing to counter-offer,” Brookes advises.

And if you don’t have first right? It may end up on the market again. It’s also worth giving the agent a call and saying you’re still interested, or waiting around to see how the first prospective buyer responds.
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jduke-EHk3XBmHkn

What does “passed in” mean? Investment terms explained

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Paying just $2,500 to get into property seems like a good way to buy in faster, with little cash down, and it has been making headlines this week.

Unsurprisingly, the idea that you can put down just $2,500 on a property purchase had people interested.

High loan to value ratios (<a href="/expert-insights/finance/29932-what-is-an-lvr-investment-terms-explained" target="_blank">LVRs</a>), in the high 90s, have <a href="/expert-insights/investing/13322-low-deposit-loans-lures-offered-to-first-home-buyers" target="_blank">been regularly seen</a>. However, it’s not often that close-to 100% loans are offered without some other sort of security.

Victoria-located HomeFirst, with the tagline “Your first home builder”, are currently running a promotion that notes that $2,500 is all some eligible first home buyers may need to start getting into property ownership.

Of course, the “$2,500 deposit*” comes with a hefty asterisk.

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This finance offer is available to eligible buyers receiving the first home owners grant.

The terms and conditions explains that you are essentially trying to make up the 5% deposit required - in part through the grant, and in part through a personal loan “which are applied to the land contract, build contract, government charges and lending costs”. The finance is arranged through Western Australia’s The Loan Company.

The idea is to get them into one of their house and land packages across Melbourne.

[smartcode_project:default project_id=3783]

Their “No deposit? No worries” line is also shared with The Loan Company’s other strategic alliance partners, including HomeStart (located in the same building as The Loan Company), whose “No Deposit? No drama” line notes that they have access to “exclusive products which are going to help young Western Australian's into new homes with NO DEPOSIT required.”

The Loan Company notes that many lenders require significant upfront deposits, which can be tricky for those in the rental trap. Their site notes that as part of the BGC Group, if you build your home with a BGC Homebuilder, then you may be eligible for their BGC NewStart No Savings Home Loan, tailor made for first time buyers to “pay zero deposit for the house or land”.

This isn’t an entirely new concept.

In fact the Home Loan Experts already note a number of criteria that you need to be able to fulfill if you want to take out this kind of loan.

This includes:

<ul>
<li>A high income to afford both repayments 
	 </li>
	<li>Little existing debt (car loans, high credit card balances, etc) 
	 </li>
	<li>A clear credit history 
	 </li>
	<li>Some savings to make up any shortfall 
	 </li>
	<li>A proven rental history (preferred)</li>
</ul>
Source: Home Loan Experts

They also note that some lenders of personal loans will not provide this to you if it’s for a home loan. And many lenders require genuine savings (although some accept rent repayment receipts as genuine savings), and so will not accept borrowed money as a deposit. This means that the number of lenders who match up well in this respect are thin on the ground, and you may not be able to get with your lender of choice or get the rate you’ve had your eye on.

Remember, personal loans have higher interest rates. Jumping onto Finder sees the lowest personal loan’s variable interest rate at 9.95%, with the majority around the 13% mark. No small figure, considering home loans are sitting around the 5% mark.

Situations in which this could make sense include those who are expecting to come into a lot of money, to then pay down their loans. However, it’s entirely individual dependent.

What this type of loan can possible do is take place of <a href="forward-planning/34333-what-is-a-guarantor-investment-terms-explained" target="_blank">the increasingly popular ‘guarantor’ concept </a>(where a parent or close relative provides security so that the new buyer can borrow more without having to pay lenders mortgage insurance, or LMI). Not everyone’s parents own property, or have enough equity to assist their children, and not all children want to rely on their parents for a loan.

See over page for what to do if you have little to no savings

<hr class="system-pagebreak">
 

If you have little to no savings at present, and perhaps don’t qualify or want to use the low deposit loan and personal loan combination, then you have a number of options that you can consider.

Here are five things to have on your radar.

Use a guarantor

As previously mentioned, parents can be a helpful option

Save for longer

It might not be what you want to here, but sometimes saving for longer can be the most prudent option. Here are <a href="/expert-insights/buying/35198-13-simple-tips-to-help-first-home-buyers-save-for-a-deposit" target="_blank">13 simple savings tips from Mark Bouris</a>.

LMI

You may be able to get a <a href="/expert-insights/27914-the-three-things-your-home-loan-broker-knows-that-you-dont" target="_blank">high LVR loan with little savings as a result of LMI</a>.

Joint Venture

You could consider <a href="/expert-insights/investing/19393-friday-observer-ytc-chan-a-naylor?start=1" target="_blank">buying in with a family member or friend</a>, sharing the deposit or coming up with another arrangement if they have capital but are perhaps missing another part of the equation like serviceability.

Fractional investing

This type of property investing, which <a href="/expert-insights/buying/32656-what-is-fractional-investing-property-investment-terms-explained" target="_blank">allows you to buy a ‘part’ or a ‘share’ of a property</a> acts a little like shares but allows you to buy in as a group of investors.
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A $2,500 deposit can get you into property – but what’s the catch?

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“How much should I be paying?” It’s a common question that investors are right to ask about every aspect of real estate.

For Queensland investors looking to rent out their property, it’s all about the agent’s fee. Property Observer has looked to Fair Trading Queensland to determine what fees your agent should be charging you. This is for both residential and holiday lettings, and agents fees can be a number of charges including commission on rent and a letting commission.

Letting commission, or that once-only cost you pay at the start of each tenancy agreement, is for the agents costs of advertising the property and setting up the new tenancy. 
Of the rent your tenant pays, your property manager takes their portion and provides the rest to you.

In this case, Fair Trading notes that it’s the length of the tenancy that determines the cost. We note that the figures cited by Fair Trading are the maximum allowed commissions in all instances, and not necessarily the industry norms.

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For tenancies two weeks or shorter, the maximum is 50% of one week’s rent.

For more than two weeks to three weeks it is 75% of one week’s rent.

For more than three weeks to one year it totals one week’s rent.

For one to five years, the fee is 5% of one year’s rent. And for more than five years, it’s 7.5% of the average annual rent.

For commission on rent, this depends on whether they have charged you a letting commission.

If so, then it will be 5% of the rent for the first year, and 7.5% from then on. If not, then it will be 7.5%.

[smartcode_project:default project_id=26730]

Other charges may be seen for repairs or replacements at the property if they are required to supervise. This has to be agreed to in writing.

Finally, Fair Trading notes that for holiday letting the maximum for three months or more is 9% of the total rent, and for less than three months it comes to 12%.

They also note that some agents do not charge a letting commission on holiday rentals, which makes sense considering how many holiday rentals utilise online listings sites to find clients.
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The amount Queensland agents should charge for letting a property

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Australia: Boom to bust author Lindsay David posed an interesting point of discussion yesterday evening, wondering what the effect of macro prudential measures may be on self managed super funds with residential property investments.
<img src="/images/2014/10/1/Picture%2017.png" alt="">
Jordan Eliseo, chief executive of ABC Bullion, tweeted back “problem is mate that MP won't hurt SMSF's or Foreign HNWs - they can afford 20% deposits no worries. MP will only hurt FHBs I fear”, to which David noted that the question is how it affects demand.
Peter Fraser from Brisbane Business Finance noted that residential investment in SMSF isn't usually the best anyway, and is often a decision by the beneficiary for a retirement house, not for growth.
David expects it to play out before the end of 2017.
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SMSF and macro prudential: Tweet of the day

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As of 1 January 2015, Northern Territorians looking to buy their first home will only be able to get the First Home Owners Grant if they buy new, under recently announced changed.
The current property value limit of $600,000 will be removed, and the value of the grant for building or buying new homes has increased $1,000 to $26,000.
These changes are in effect as of tomorrow.
Dave Tollner, treasurer, said that the removal of the value limit will remove the requirement that the buyer pay for a valuation of the property.
“These are practical changes that will make the grant more appealing and flexible to first home buyers that are buying or building new homes,” Tollner said.
At the moment, a $12,000 grant can be obtained for established dwellings in an urban area, or in Darwin, Palmerston and Litchfield. A $25,000 grant is available for those outside of the urban area.
These grants for established homes will be gone from next year, with hopes of stimulating new home construction and to encourage a take up of the accelerated land releases.
“By targeting the first home owners grant towards the purchase of newly built homes, the grant is more likely to contribute to growth in housing supply and employment in the construction sector,” said Tollner.
Those looking to buy an existing dwelling have an opportunity for the next eight months to take advantage of the existing grant.
“This will ensure an orderly transition and allows buyers who are currently in the process of buying a home, or intending to do so in the near future, with sufficient opportunity to take advantage of the FHOG as part of that purchase until the end of the year,” he said.
“But ultimately, we want this grant to encourage the construction of new homes, create more jobs in the residential construction sector and improving housing affordability by increasing housing stock.”
In announcing this decision, the government acknowledged that providing a grant for existing property is <a href="/expert-insights/buying/65-first-home-buyers/31161-northern-territory-government-acknowledges-that-fhogs-push-up-house-prices" target="_blank">“widely regarded” as contributing to higher property prices</a>, noting economist Saul Eslake’s comments.
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Northern Territory’s FHOG directed to new builds only from 2015

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A representative from the Real Estate Institute of Australia (REIA) recently spoke before the Parliamentary Joint Committee Inquiry into the Financial Services Industry and highlighted a number of concerns for real estate agents and consumers in the SMSF space.
REIA chief executive officer Amanda Lynch, in the latest issue of the REIA’s newsletter, touched on these issues in further detail.
“Our involvement with this inquiry was at the request of the committee, although the REIA has been pro-actively working to address community and industry concerns about the blurring lines between real estate agents and the provision of financial advice,” explained Lynch.
It seems that one of the major concerns is the blurring of the line between the role of a real estate agent and the role of an SMSF financial planning adviser.
This concern is not just strictly related to real estate agents. Just recently, Park Trent Properties, who run seminars and education programs for property investors and promote property, <a href="/expert-insights/finance/37679-asic-commences-proceedings-against-property-promoter-park-trent-properties" target="_blank">have been targeted by ASIC for their SMSF promotions</a>. ASIC explains that they are effectively carrying on an unlicensed financial services business.
Lynch contests that there is an issue, but that it’s limited within the real estate agent profession.
“While we recognise that for the most part, few if any, real estate agents are involved in the promotion of SMSFs, some of our members report that there is an increasing demand from accountants who managed SMSFs on behalf of trustees as well as vertically integrated organisations that approach agents seeking suitable properties,” she said.
She explains that the vast majority of real estate agents do not make estimates on rental returns or capital gain on properties.
However, those that do were noted to utilise statistics publicly available through the ABS, Bendigo and Adelaide Banks and the REIA’s own Real Estate Market Facts and Housing Affordability Report.
“Importantly, no payment is sought for this advice as it forms a basic part of being a real estate agent,” she said.
Lynch also recognised that there are “clusters of agents in certain areas with the dual role of also being a financial planner”.
Currently, a deterrent to this is the high cost of personal indemnity insurance to offer financial advice.
Instead, she also warned that financial advisers are approaching the real estate industry themselves – and not in the most scrupulous way possible. Her warning is towards those who use fast-track course methods to obtain qualifications to become a real estate agent.
They require no exams, are completely solely online and have a “very suspicious 100% success rate” she warns.
The REIA is seeking the de-registration of courses that offer a no course, no examination full success rate.
“These courses are not at all regarded by established real estate agents,” she said.
SMSF trustees have previously <a href="/expert-insights/finance/33507-smsf-trustees-warned-not-to-take-financial-advice-from-real-estate-agents" target="_blank">been warned not to take advice from real estate agents</a> by ASIC commissioner Greg Tanzer.
“ASIC is aware that there has been a sharp rise in promoters recommending that investors either set up or use an existing SMSF to invest in property,” Tanzer said.
“These promoters may not be complying with the law.”
In response to these statements earlier this year, Graeme Colley, director of technical and professional standards at the SMSF Professionals’ Association of Australia, said that real estate agents might not actually know that providing this advice without a licence is illegal.
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The blurring line between real estate agents and SMSF advice

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The Financial System Inquiry recommendations, which include limiting self managed superfunds’ investment in property, have been criticised by the Real Estate Institute of Australia (REIA) who remain unconvinced about the risks.
REIA chief executive Amanda Lynch said they welcome the release of the Inquiry as an opportunity to identify scope for concern, but see a number of recommendations that could burden home borrowers.
“REIA is not convinced that the risks associated with lending through self managed superannuation funds (SMSFs) warrant the recommendations to limit the scope for SMSFs to invest in property,” she said.
“While we have well-documented concerns around the inappropriate marketing of property as part of an SMSF, REIA would be concerned by any move to restrict the possibility for mum and dad investors to secure their retirement through a balanced portfolio which includes property.”
The submission made by the REIA in August to the interim report noted that it is the place of the Inquiry to report on integrity and risks to the financial systems.
At the time, they warned that proposals around prohibiting SMSFs from leveraging into property “could be seen as passing an assessment on what are suitable investments for individuals.”
“Further, it ignores the fact that lending to SMSFs is such a very small part of the financial system that it is inconceivable that it presents a risk to it, even with further growth,” the submitted.
They noted that borrowers already have a number of restrictions, including the use of the property, the arms-length relationship with tenancies, and annual auditor scrutiny.
“To impose a prohibition on borrowing by SMSFs would put a constraint on the maximising of the profits of those funds and thus limit retirement savings,” the submission noted.
In fact, they made these four recommendations instead:
<ol>
<li>That the risk weights for insured loans be reduced. 
</li>
<li>That the current arrangements regarding negative gearing remain unchanged. 
</li>
<li>That a data base be developed to reduce information asymmetries between lenders and borrowers. 
</li>
<li>That the current arrangements regarding leveraging by superannuation funds remain unchanged.</li>
</ol>
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The REIA’s four alternatives to restricting SMSF property investments

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An enforceable undertaking from Queensland-based LCL Capital Pty Ltd has been accepted by ASIC, after deficiencies were discovered in the methods of monitoring and supervising their authorised financial adviser representatives.
Timothy Bryce, who previously worked for Sherwin Financial Planners Pty Ltd, provided advice to clients through LCL Capital and brought the company under ASIC investigation.
Sherwin Financial Planners have been found as linked to now-failed property lender Wickham Securities, that was put into liquidation in early 2013. They owed $27 million to investors. This has seen angry investors in meetings with renowned Erin Brockovich and Shine Lawyers as they gear up for a class action. Other companies under the Sherwin Group included DIY Superannuation Services, Astor Funds, Reacroft Pty Ltd, Blue Diamond Investments and SP Property Pty Ltd. Wickham chief executive <a href="/expert-insights/finance/24652-asic-adds-new-names-to-wickham-securities-action-with-further-assets-frozen" target="_blank">Garth Robertson saw his assets frozen in 2013</a>.
LCL Capital was incorporated on 1 July 2010, and granted an AFS Licence on 5 October 2010. They have 10 authorised representatives under the licence. On 4 June 2013, ASIC conducted an investigation into Bryce's conduct, initially in relation to whether he as an individual acted against the Corporations Act. This was then widened to look at the whole company. ASIC found instances where he failed to demonstrate a reasonable basis for the advice he provided, failed to provide replacement advice to clients and failed to adequately disclose commissions payable to clients or to provide updated disclosure and additional advice documentation.
ASIC alleged failure on behalf of LCL Capital to ensure financial services were provided efficiently, honestly and fairly, to ensure authorised representatives were adequately trained and competent to provide financial services, to take reasonable steps to ensure the representative complies with the law and to demonstrate adequate resources were available to provide financial services and carry out supervisory arrangements.
LCL Capital will now submit to a regime of supervision, review and audit or the authorised representatives for a minimum of 15 months.
ASIC Deputy Chairman Peter Kell said that licensees must have adequate systems in place to ensure they’re across the actions of their representatives.
LCL Capital offers services surrounding stocks, derivatives, foreign exchange, execution and platform services, planning, super, insurance and mortgages.
Tim Bryce’s LinkedIn account notes that he is an LCL Capital director, “SPAA SMSF Specialist adviser across Queensland and the Northern Territory. Providing tailored financial and estate plans for our retail and wholesale clients alike. OnePath Adviser Life Risk Board member and AFA Rising Star 2013 finalist.”
It notes his employment at LCL Capital has been for almost two years.
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LCL Capital's enforceable undertaking accepted by ASIC

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When it comes to purchasing a property, it’s easy to forget that there’s a vendor on the other end of the struggle who, ultimately, will determine the outcome to your offer. Their motivations, requirements and attachment to the home in question can all be crucial in getting the deal over the line.
Usually, the real estate agent will play the part of ‘go between’ for yourself and the vendor, leaving very little, if any, opportunity to meet and discuss in person. While this can do wonders for keeping emotions out of the transaction, it can also leave you completely unsure of who you are dealing with and what you can do to push the deal over the line.
There are a number of ways to determine what you can about the vendor.
Questioning the agent correctly
Upon your initial conversation with the real estate agent, you want to take things fairly easy. Remember that the selling agent is the vendor’s agent and is there to act in their best interest. For this reason, you do not want to be asking them to reveal personal information, or details that may limit the potential success for the vendor.
One way to structure your questions is to do so in terms of offers. You could say to them something like the following: “I’m interested in making an offer. Are there any favourable terms and conditions I could include that might make my offer more acceptable? Such as a longer or shorter settlement?”
You haven’t put your cards on the table in terms of a dollar figure, but you’ve alerted the real estate agent that you’re a serious contender for this property and you’ve put the ball into their court.
Don’t be scared to further question why they want those terms, for instance “Excellent, yes, I can certainly put that in. Do they already have their next home lined up?”
If this isn’t particularly revealing, you can ask questions framed in terms of the property itself. You may say “This is a beautiful home, why are they moving away from it?!”
These non-threatening exchanges may provide you a few snippets to get started with.
Checking the property’s history
Heading on to the past records, such as RP Data, can show you a number of important pieces of information. This could include:
<ul>
<li>How long the property has been on the market for</li>
<li>Whether the vendor has changed agents previously</li>
<li>If it is/has been rented or advertised as a rental</li>
<li>Whether the price has been decreased over the sales campaign (also known as ‘vendor discounting’)</li>
</ul>
You can use the area’s averages to get an understanding for how it looks on a comparative basis. You may even find the vendor’s name and a few details within these records, otherwise a land title can reveal the information necessary.
With the vendor’s name, particularly for prestige properties, a quick Google may result in the reason for the move. High quality homes, with high price tags to match, can often be owned by the movers and shakers. Press releases and ‘about us’ staff pages may reveal whether they are moving for a new job offer, or perhaps heading overseas. You’d be surprised what information the internet holds about people – and their properties. Googling the street address can also be just as revealing.
You might just find that Property Observer has written about the home in the past. Here are <a href="/news/26553-oct-2-observer-how-to-avoid-a-damning-digital-footprint-peter-omalley" target="_blank">some of the digital footprints that properties might just leave behind</a>.
At the open home
Open homes can be good for multiple reasons. While it gives you an opportunity to have a thorough look around the property, you can also get an understanding of the people who lived here last. Children’s rooms, family pictures and new baby paraphernalia may suggest you’re dealing with an upsizer. Meanwhile, older and black and white photographs may indicate otherwise. Other clues can also be in what is displayed – are there certificates and trophies?
You may find that the entire house has already been cleaned out. If it’s the primary place of residence for the previous owners then this may suggest that they have already purchased their next home and that they are looking for a quick sale.
How well presented the home is, and whether it has been professionally staged or not, can also attest to how savvy the vendor is about property.
You may also find that the neighbours are poking around the open home as well, which may give you an opportunity to field some questions about the home and its occupiers as possible.
Speak to the agent again
Head back to the agent with this information. If it has been listed for a long time, you might want to ask questions like the following:
“Are the vendors actually interested in selling? It has been listed for five months, which is far longer than the area’s average.” If you look as though you might step away from purchasing, the real estate agent is likely to try a little harder.
You may also want to ask about any previous offers and the reasons they were not accepted.
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How to: Find out as much about the vendor as possible

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Our Friday poll found that the majority of respondents are looking to purchase in the $300,000 to $400,000 bracket, further suggesting that they may be pushing up against first home buyers.
With 26.9% of readers pointing to the $300,000 to $400,000 bracket, and 62.7% looking to purchase under $500,000 in total, it looks like investors will be driving the affordable bracket.
<img alt="poll-results-sept-23" height="320" width="470" src="/images/stories/2013/09/23/poll-results-sept-23.jpg">
With investors pouring into the market, and talks of prices rising substantially in some capitals, it’s no wonder that first time buyers are starting to feel the heat.
Of course, there are two waves of thought here. One goes along the lines of ‘get in now before everything jumps in value and prices you out’, while another perspective is ‘wait until there isn’t any competition in the market’.
Similarly, if you’re sitting on a 5% deposit, then the temptation to hold off of entering can be strong.
In fact, investors have <a href="https://www.urban.com.au/property-observer" target="_blank">recently been blamed for first home buyer woes</a>, and SQM Research announced that<a href="https://www.propertyobserver.com.au/finance/first-home-buyers-priced-out-of-the-market/2013092265179?utm_source=po&amp;utm_medium=aida&amp;utm_campaign=news" target="_blank"> first time buyers are already getting priced out</a> of the market.
All this comes at a time when markets are heating up.
 
{module Should first time buyers be holding off or jumping into the market now?}
 
 
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Jennifer Duke

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