What a No Sale Means at a Land Auction

May 28

farm east of Perth

East of Perth, out past the wheat towns of Western Australia's Eastern Wheatbelt, the Brayshaw family has farmed a place called Roundhay since 1924. It covers 9,090 acres near Mount Walker. This month the family put it up for auction.

Nutrien Harcourts Midvale ran the sale online. Bidding opened at $7.7 million in Australian dollars. It climbed to $8.5 million, then to $12 million on auction day. Then it stopped, just short of the family's reserve.

In Australia they call that "passed in." Here we call it a no sale.

Right after the auction, the agent kept working. The farm sold to the neighboring farmers at an improved price after more negotiation, according to the Stock Journal. The final number wasn't made public.

What a land auction is for

Sellers sometimes think that if a sale doesn't hit the reserve, the auction failed. That's not necessarily the truth.

An auction has one purpose. It finds the right buyer at the right price. That can happen when the hammer falls or in the negotiation afterward.

The Roundhay auction brought buyers together on a set date and moved the bidding from $7.7 million to $12 million in public. The family learned where the market stood. The buyers who wanted the farm most, the neighbors, were already at the table.

Reserve, absolute and no sale

Reserve. A reserve is the lowest price the seller will accept. The seller and the auction company agree on it before sale day, usually in writing. The number is usually kept confidential. If the bidding doesn't reach it, the seller doesn't have to sell.

Absolute. An absolute auction has no reserve and no minimum. The property sells to the high bidder, whatever the price. Sellers who choose absolute are trusting the market completely. Many buyers like that certainty, because they know the property will sell that day.

No sale. A no sale is what happens when a reserve auction ends below the reserve. The seller keeps the property, at least for the moment. In Australia, the term is passed in. After a no sale, the seller can still negotiate with the bidders.

What happens after a no sale

Most auction contracts, especially for real estate, include language about what happens after a no sale. That language usually lets the auction company keep working with the seller and the bidders to negotiate a sale. If you're signing an auction contract, read that part and ask your auctioneer how it works.

Sometimes the work after a no sale is a negotiation with the high bidder. Sometimes it's a conversation with the family about realistic expectations. That conversation matters even more in this market.

It matters most when the sellers don't agree with each other. In a contested divorce or a contested estate, the parties can have a gross overestimation of what the property is worth.

An auction puts the same facts in front of everyone on the same day. The bids are public, and they came from buyers.

What the market will pay

Markets and auctions speak to the true market price. That means what the market is willing to pay on any given day.

Appraisals and CMAs have their place. A CMA, or comparative market analysis, is what a Realtor prepares from recent sales nearby. An appraisal is a licensed appraiser's estimate of value. Both are professional opinions.

The price of a piece of property, or a tractor, or a corner cupboard, is only realized once someone is willing to write a check.

The Brayshaw family learned what Roundhay was worth from the buyers, in the bidding and in the negotiation that followed.

If you're thinking about selling farmland, rural acreage, or an estate in Middle Tennessee, keep these points in mind:

Set your reserve with good information, and talk it through with your auctioneer before sale day.
Read the part of your auction contract that covers a no sale.
Watch the bidding. It tells you where the market is.
Don't panic if the hammer doesn't fall. A no sale can still end with a signed contract.