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What is a reserve price at a property auction?
A reserve price is the lowest price a seller sets for an auction sale. If bidding stays below it, the home may be passed in, meaning not sold at auction. The reserve differs from a price guide and a buyer's budget. Auction rules vary by state, including rules about bids made for the seller.
Updated
How does the reserve differ from the advertised price guide?
The reserve sets the seller's minimum for the auction. The guide gives price information to buyers. Local advertising and auction law sets the rules for both. A guide does not promise the winning bid will match it. The reserve does not prove what the home is worth. It records the seller's instruction.
The auctioneer may discuss instructions with the seller as bidding proceeds. Victorian guidance describes checking when bids approach or reach the reserve. An announcement that the home is on the market reflects that auction stage. It does not change a bidder's own budget. Nor does it show that every state uses the same steps.
What is a vendor bid and how is it identified?
A vendor bid is placed for the seller under the state's permitted rules. It differs from a genuine buyer bidding to buy. In Victoria, only the auctioneer can make it and must say it is a vendor bid. The auction rules must also disclose the arrangement. It is not another buyer's offer.
Dummy bidding uses a false bid to affect the sale and is banned. The allowed number and circumstances of vendor bids differ by state. Victoria's rules cannot be used as a national allowance. A bid made for the vendor does not show that another buyer has offered that amount for the property.
What happens when an auction is passed in?
Passed in means the auction ended without a sale. This may happen because bids did not meet the seller's instructions. The owner can then discuss a private sale. In Victoria, the highest bidder gets the first chance to negotiate. Other buyers may be approached if those talks do not reach agreement.
That chance does not promise a discount, sale at the reserve or cooling-off rights. State law can exclude cooling-off for sales close to an auction. This can include homes that passed in. A later deal still needs the correct contract steps. The seller's choice and auction rules decide what happens, not a bidder's assumption about what their high bid secured.
Illustrative example5 steps
Measuring the gap between a bid and a hypothetical reserve
- Assume the seller sets an auction reserve of $920,000.
- The highest genuine bid is $890,000.
- Gap to the reserve: $920,000 minus $890,000 = $30,000.
- If the seller does not accept that bid, the property can pass in.
- The $30,000 gap is only arithmetic. It is not an amount the bidder must offer, or evidence of the property's value.
For investors
An auction threshold is not an investment assessment.
The reserve is part of the seller's auction plan. Rent, costs, condition and similar prices belong to the investor's separate checks. Reaching the reserve does not prove those estimates are sound. Passing in also says little about quality. It means no auction sale occurred, rather than proving that a later deal will suit the buyer.
Common questions
Questions about reserve price
Keep learning
Property is a complex world.
Reserve price is one piece of it. A purchase runs on deadlines, contracts and people working for different sides. Next, read about cooling-off period, exchange of contracts and property valuation.
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