Can a reserve price change during a property auction?

t-money on 30/03/2019 - 15:58
Last edited 30/03/2019 - 16:03

My partner and I attended an auction today in Melbourne, and based on the behaviour of the auctioneer and real estate agent, it appeared the reserve price was changed during the auction. We do not have a lot of experience at auctions and have been attending to understand before we bid on a property. Here is what happened:

• Bidding increased to $690k and the auctioneer had not yet announced the property was on the market.
• As soon as the bidding hit $690k, the real estate agent literally ran inside to speak with the vendor. The auctioneer announced they were speaking with the vendor and had still not announced the property was on the market.
• After a 3-4 minutes the real estate agent returned and spoke with the auctioneer, who then announced the property was on the market.
• Property then sold for $692k.

From what I understand, if the reserve price is $690k, as soon as a bid is received at this price the auctioneer must announce it’s on the market. By not announcing this immediately and waiting to speak with the vendor before announcing, it appears they have had some discussion and decreased the reserve to ensure the property sells. I am just speculating here but it does seem very odd.

Maybe I just don’t understand how auctions work and this may be normal. Can anyone clarify if this is the usual process or something odd really has happened.

Financial

Comments

  • 87percent on 30/03/2019 - 16:01
    +2

    Yes it can. Reserve is just a minimum price they will sell at

    In this current market, sellers should not be going to auction IMO, unless they absolutely have to sell, better to go private sale

    • t-money on 30/03/2019 - 16:03

      So they can change reserve during auction?

      • try2bhelpful on 30/03/2019 - 16:20

        The reserve is just the price the vendor is willing to accept, below that they won’t sell. The auctioneer generally chats to the vendor once bidding has dried up to see if they are willing to sell at that price. Sometimes it is worth going for a bit less rather than keep going through the hassles of selling. Even if passed in usually the highest bidder gets first crack at negotiating the price. Auctioning is best if you are in a popular area or have something particularly attractive about your property.

        What is a tad dodgier is the vendor bid.
        https://propertyupdate.com.au/vendors-bids-auctions-explaine…

        • t-money on 30/03/2019 - 16:54

          Thanks for your response. Wondering why you say the vendor bid is dodgy? I also find this bid quite odd as last week at a different auction a property started at a vendor bid of $620k and after more vendor bids to $650k was passed in with no real bids… seems a very bizarre way to run an auction

          • try2bhelpful on 30/03/2019 - 17:03
            +1

            @t-money: Just the fact they aren’t real bids, a way to get things started. Yeah, it is funny when people don’t join in. The auctioneers should have some idea on the interest for the place beforehand.

          • Love a bargain on 31/03/2019 - 13:50

            @t-money: thought the vender is only allowed to put in 1 bid (I could be wrong though)

            • try2bhelpful on 31/03/2019 - 13:58

              @Love a bargain: "Different in Different States. In Victoria and Queensland there is no limit to the number of vendor bids allowed while in NSW only one bid can be made on behalf of the seller."

              https://propertyupdate.com.au/vendors-bids-auctions-explaine…

              • Some Guy on 01/04/2019 - 09:43

                @try2bhelpful: I've been at an auction where there were no other bids but vendor bids. This charade went on for about 4 or 5 bids and the auctioneer said the vendor was prepared to negotiate with the highest bidder. Some other guy took the words out of everyone else's mouths and said, "well he'll be negotiating with himself then". Oh how we laughed.

  • CheapSticks on 30/03/2019 - 16:53

    It can change as it all depends on the vendor. Like if agent/auctioneer felt that the market is saying only $690k and say the vendor reserve was $700k they wud hv gone back to the vendor and said we think we have got the best in today market - are you prepared to lower reserve to 690k and put the property on the market.

    Even if the reserve is met - generally you will find that the agent and auctioneer seek vendors consent before saying the property is on market.

  • CyberMurning on 30/03/2019 - 16:55
    +8

    I think the reserved price system is just stupid. If seller doesnt want to sell below $800k for example then just start the auction at $800k. Simple.

    It's very annoying and unfair for buyers, come in, waste time to bid and then to find out reserved price hasn't been met. Just pure stupid.

    • try2bhelpful on 30/03/2019 - 17:06
      +1

      I agree with your idea, in theory, but the problem is auctions work on momentum and emotion. If they start too high people won’t be invested in the process. However, the real estate agent is now, legally, obligated to give you realistic figures on estimated property price before the auction.

  • ihbh on 30/03/2019 - 18:17
    +1

    Yes, it can reduce. Obviously if prices shoot above it, there is no need to worry about increasing it because sellers will be happy.

    Here's how it can reduce.

    Say the reserve price was $700k coming into the auction. Bidding stalls at $690k. The auctioneer and agent (or same) can say something like this to the seller: Look, you've spent $20k on the marketing campaign, and the bidding is so close to your reserve price. If you reduce it a bit, the bidding might go for a bit more and come close to your reserve price or even exceed it. The alternative is it's passed in, the highest bidder has the right to negotiate with you. But then it's just one buyer vs many more buyers if you drop your reserve price and we let the auction continue. Also, some buyers might not bid until the property is on the market. If you don't sell the property through the auction, then you will have to spend another money to sell it by private treaty. You might not be able to get a price close to today because buyers might think the property's a lemon by being on the market for so long. And if it takes another 3 months to sell the property, how much more interest will you have to pay on the mortgage?

    • elgrande on 30/03/2019 - 19:59

      I agree, I think the agent talked the owner down.

      P.s. sounds like you have had a bit of experience dealing with agents (or you are an agent)

      • ihbh on 30/03/2019 - 20:00

        Or talked sense into the owner. E.g. if it's close to your reserve, sell now, especially if the market is falling, or you incur more costs (marketing, holding costs, etc.), which could be more than the difference between original reserve and new reserve (plus any extra property sells for).

        PS: Lots of experience in this business :), but not as an agent; and obviously know how they think and their motives, training and methods.

  • Bid Sniper on 30/03/2019 - 18:29

    Yep can happen, depends how good or bad auction is going. Agreed its stupid.

    Had some scumbag real estate agent make a bid by the vendor on their own property that was way above the price guide, killed the auction, no bids and lot of pissed off potential buyers. Apparently that is legal too..

    • ihbh on 30/03/2019 - 19:59

      pissed off potential buyers

      Why?

      If it's passed in and the vendor wants to sell, it's then by private treaty and they have the opportunity to make offers, etc.

      Pissed off off as in spent money on building and pest inspection and were hoping to buy today?

  • Some Guy on 01/04/2019 - 09:44

    As far as I'm aware, state-based laws being what they are, there's no legal requirement for an auctioneer to declare that a property is "on the market" and the vendor can change his arbitrarily determined reserve price as often as he likes until the hammer is down.

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