Is a Bid at Auction Only Binding if above Reserve Price?

witsa on 22/09/2025 - 22:21

I always thought that is you make a bid at an auction, you are legally obligated to buy at that price. There is no cooling off period and conditional to financing etc.

However the seller is only legally obligated at sell if it is above the reserve price.

However when I asked Gemini this "So at an auction in Australia if I win the auction at below the reserve price they don't need to sell it but I need to buy?"

It responded with

  • This is a great question and it highlights a key aspect of how auctions work in Australia.
    The short answer is no, they don't have to sell it, and you don't have to buy it.
    Here's a breakdown of the rules and what happens in this situation:
    The Seller's Position (The "Reserve Price")

    • The Reserve Price: Before an auction, the seller sets a confidential "reserve price." This is the minimum amount they are willing to accept for the property. This price is not disclosed to bidders.
    • The "On the Market" Call: The auctioneer's role is to sell the property once bidding reaches or exceeds the reserve price. When the reserve is met, the auctioneer will usually announce that the property is "on the market" or "will be sold to the highest bidder." This signals that a sale is guaranteed, and the highest bid at the fall of the hammer will be the winning bid.
    • "Passed In": If the bidding does not reach the reserve price, the property is "passed in" or withdrawn from the auction. The seller is not obligated to sell the property at a price below their reserve.
      Your Position as the Highest Bidder
    • No Obligation to Buy: If the property is passed in (meaning it didn't reach the reserve), you as the highest bidder are not legally obligated to buy it. The highest bid is an offer, but it has not been accepted by the seller because it's below their minimum price.
    • First Right to Negotiate: While you aren't forced to buy, you are usually given the "first right to negotiate" with the seller. This is a private, post-auction negotiation where you can try to reach an agreement on a sale price. The seller might be willing to lower their reserve, and you might be willing to increase your offer to a price they find acceptable.
    • Legal Commitment: A legally binding contract is only formed when you, as the highest bidder, and the seller both sign the contract of sale. At an auction where the reserve is met, this happens immediately after the auctioneer's hammer falls.
      In Summary
    • Bids below reserve: The seller is not legally required to sell. You are not legally required to buy.
    • Bids at or above reserve: The seller is legally required to sell to the highest bidder. You, as the highest bidder, are legally required to buy and sign the contract on the spot.
      This system is designed to protect both the seller (by setting a minimum price) and the buyer (by ensuring they are not forced to buy a property that has not met the seller's minimum price).*

Chatgpt and perplexity also offered similar views. Not looking to buy but just want to know if I just been wrong about how auction works all these years?

Financial

Comments

  • WoodYouLikeSomeCash on 22/09/2025 - 22:26
    +7

    That is the whole point of a reserve…

  • johndowy on 22/09/2025 - 22:27
    -3

    You've raised an excellent and very common point of confusion about auctions. The information you received from Gemini, as well as ChatGPT and Perplexity, is correct for how most real estate auctions in Australia operate. Your previous understanding, while logical, is not entirely accurate in this specific legal context.

    Here's a breakdown to clarify why:

    1. The Role of the Bid (It's an Offer, Not a Contract)

    In a typical property auction with a reserve price, each bid you make is an offer to purchase the property at that price.

    The seller's "acceptance" of your offer is not signified by the auctioneer just saying "going once, going twice, sold!" at a price below the reserve.

    The seller's acceptance is only legally binding when the reserve price is met or exceeded, and the auctioneer declares the property "on the market" and then sells it with the fall of the hammer.

    1. The Reserve Price (The Seller's Minimum)

    The reserve price is the seller's secret minimum price. It's a condition of their agreement to sell.

    The auction is a process to determine if a bidder is willing to meet or exceed that minimum.

    If the bidding stops before the reserve is reached, the highest bid is simply the best offer received, but the seller is not obligated to accept it. The property is "passed in."

    1. What Happens When a Property is "Passed In"?

    When a property is "passed in" (because the reserve wasn't met), the auction process is over.

    At this point, you, the highest bidder, are not legally bound to buy the property, and the seller is not legally bound to sell it to you.

    However, because you made the highest offer, you are usually given the "first right of negotiation." This means the agent will take you aside to try and negotiate a sale. The seller may be willing to lower their reserve, and you may be willing to increase your offer to meet them somewhere in the middle. This is essentially a private sale negotiation that happens immediately after the auction.

    1. When a Bid Becomes Legally Binding

    A bid only becomes a legally binding commitment to buy when the following two things happen:

    The bidding meets or exceeds the reserve price.

    The auctioneer's hammer falls, and they declare the property "sold" to the highest bidder.

    At that exact moment, a legally binding contract is formed, and the winning bidder is required to immediately sign the contract of sale and pay the deposit. There is no cooling-off period.

    Analogy:

    Think of it like an online marketplace with a "Reserve Price" feature. You can bid all you want, but the item will only sell if your bid reaches the seller's hidden minimum price. If the bidding closes and your highest bid is below that minimum, the seller isn't obligated to sell it to you. You can't force them to. Similarly, since the seller hasn't agreed to your price, you're also not locked into buying it.

    So, your initial thought that a bid is always legally binding is generally true once the auction's conditions are met (i.e., the reserve price is met). However, it's not a blanket rule that applies to every bid regardless of the outcome. The crucial element is the reserve price, which acts as a safety net for the seller and a deciding factor for when a contract is actually formed.

    It's a common misunderstanding because the legal distinction between a bid (an offer) and a completed sale (an accepted offer) can be subtle. But based on the rules of a typical Australian property auction, your new understanding is the correct one.

  • djkelly69 on 22/09/2025 - 22:50
    +4

    A bid at an auction is an offer. The seller can accept it, or not accept it (and hopefully get another higher offer).

    A bid/offer doesn't have to be over the reserve in order to be accepted.

    • try2bhelpful on 22/09/2025 - 23:09

      True but if a property is passed in rather than sold then all previous bids would be considered void. Once the highest bid has been received an auctioneer will often go back and talk to their client about lowering the reserve because the bidders are all gathered now. If the owner agrees then the Auctioneer usually confirms with the last bidder on their price and it is on the market from there on.

      When we sold our place at auction we went past the reserve on the second bid so the Auctioneer just came back for a chat. This process usually wrings a couple more bids because people think they are close to getting it.

      • Muppet Detector on 24/09/2025 - 18:31
        -1

        However when I asked Gemini this

        Gemini is not being completely truthful.Not even with the very basic initial principles. Some of that is sort of true, sometimes.

        It is far more complex than that. There are very many variables which influence which law/legal principle applies, when it applies and how it applies.

        Even most basic principles have multiple variations, exceptions and alternatives depending on circumstances of contract formation, performance and termination.

        If Gemini was any good at any law, far less contract law* , even a student of contract law would not need a minimum of four semesters contract law study subjects - far less any practical experience and ongoing learning.

        That amount of learning/knowledge takes far more than 5 paragraphs to explain &/or apply.

        (Ever seen a judges findings & explanations be shorter than 10 or 20 odd pages?)

        *(which is mostly created/found in common law, most still on overseas principles - all of which capable of being changed every single time a judge makes a court ruling on a contract).

        https://www.australiancontractlaw.info/jnc/about

        An excellent Australian Contract Law site - last time I looked it also had a really great explanation about auctions etc.

        Legal Commitment: A legally binding contract is only formed when you, as the highest bidder, and the seller both sign the contract of sale.

        TL/DR

        not all contracts must be in writing (only three types)

        how do you sign verbal contract?

        how do you sign online contract?

        how do you sign if you can't even write?

        where do you sign if there is nowhere to sign?

        even if in writing & signed, it may not still be on foot or even legal

        SIGNING CONTRACTS

        For starters, there are only three types of contracts which must be in writing. How do you sign a verbal contract?

        Therefor: even if a contract (not legally required to be in writing) is in writing, it does not have to be signed to be on foot.

        Only some sales must be in writing and that's not because you are actually selling it - so calling it a contract of sale is a bit of a phurphy or legal fiction tbh.

        Only some Auctions must be in writing.

        bids, offer & acceptance - the very basics

        A bid is merely an offer capable of being accepted

        You can only withdraw a bid or offer prior to acceptance.

        You generally cannot withdraw a bid after it has been accepted (three exceptions).

        Subsequent bids act as counter offers effectively over riding previous offer but not rejecting it.

        Whether rejecting or withdrawing offer, it must be communicated to the other party

        *some offers issued with time limits. Obviously when time expires, offer expires even without further action or notification.

        (though signing a written contract with your legally recognised signature, does go towards proving that you agreed with it if necessary or otherwise challenged).

        Note a legal signature isn't restricted to your name/moniker - it can be any recognised mark (including a "x") that shows intention to accept,

        (Ever ticked an online box that says "I agree"?

        A contract may also be on foot without a signature via

        • specific performance (you acted as if contract was on foot - did something/some action towards it)

        • mutual agreement

        • court order (especially within equity considerations such as unjust enrichment and so on), necessity.

        • link will list & explain more.

        => a contract is generally on foot (legally binding) when

        a) all five stages of contract law formation of contract have been lawfully established/created

        b) when contemplation of contract commencement date occurs/passes

        c) when parties to a contract intend it to be on foot

        d) when the law prescribes

        e) when other or previous contracts give rise to current contract

        • just included main ones, there are more

        RESERVE

        Also depending on why property (or other good or service) is being auctioned (or even sold) will determine whether a reserve is even able to be set/if it is legal to do so and when (or if) it can or must be adjusted or rescinded

      • Muppet Detector on 24/09/2025 - 18:35
        -1

        True but if a property is passed in rather than sold then all previous bids would be considered void.

        Not if they were accepted.

        Passing in at auction does not rescind or reject a bid if it has been accepted.

        • try2bhelpful on 24/09/2025 - 19:01

          I think the definition of “passed in” would mean the bid isn’t accepted per se. The price can be negotiated later on but I don’t a bidder would be held to that bid on a passed in property.

          • Muppet Detector on 24/09/2025 - 19:31

            @try2bhelpful: Then you would be wrong I'm sorry.

            Contingent on if acceptance has previously occurred.

            Once accepted, there's no backsies.

            • try2bhelpful on 24/09/2025 - 20:06

              @Muppet Detector: Yes but if the property has been passed in then it hasn’t been sold at the auction. The bids taken at the option would no longer apply. That doesn’t preclude other negotiations.

              • Muppet Detector on 24/09/2025 - 21:50

                @try2bhelpful: If those bids have been accepted, they don't just go away.

                Seller cannot just ignore an offer he accepted regardless of what the selling framework was.

                The bids taken at the option would no longer apply.

                Of course they do.

                Cannot ignore a bid/offer once it has been accepted.

                That's pretty basic contract principles.

                Once you've accepted that bid/offer, you can only neutralise it using legal processes.

                Ignoring it isn't one of them.

                It doesn't just go away because you closed your eyes and use one of your three wishes.

                You can't just "void" it.

                There really is no getting around that.

                Even if you do have an auction, you still have to follow the law.

              • Muppet Detector on 24/09/2025 - 21:59

                @try2bhelpful: Hang on, approach it from a different angle.

                If you accept an offer/bid at auction, you cannot "pass it in".

                Don't want a bid/offer to count? Don't accept it until you want it to count.

                If an auction ends for "pass it in" then clearly no bids/offers were accepted that hadn't otherwise been neutralised by legal processes.

                If an accepted offer is on the table, "pass it in" doesn't count unless/until that offer/s is legally neutralised.

    • witsa on 22/09/2025 - 23:39

      Yes that's what I thought too.

      So are you saying you agree that ai is wrong here? That if you make a bid, if the seller wants to sell it to you at that price you have to buy it regardless of the reserved price?

      • Muppet Detector on 24/09/2025 - 18:40

        AI is definitely wrong

        A bid is an offer capable of being accepted, rejected or withdrawn.

        A bid/offer can be withdrawn at any time before acceptance.

        A bid/offer can be rejected at any time before acceptance.

        Only three ways to withdraw or reject bid once accepted.

        if the seller wants to sell it to you at that price you have to buy it regardless of the reserved price?

        Yes. Unless offer/bid has otherwise been rejected/withdrawn or expired.

        *May get a court order to help withdraw offer after acceptance.

    • sghetti on 23/09/2025 - 09:46

      This happened with me, I attended an auction with the intention to bid, little did I know there was only one other bidder! Once they started bidding the other bidder was out immediately, didn't like the opening price. I put in a single bid and it was below their reserve price.

      Some big negotiations back and forward, I moved up a little bit and they came down from their initial expectations. The ball was more so in my court as everyone was in attendance and I was the only bidder. I paid fairly close to market value for the place at the time.

      Whirlwind of a time, the place didn't need anything done to move in, quite good condition and decent amenities. Must've been a stroke of luck that people attended elsewhere.

      • happydude on 23/09/2025 - 13:11
        -1

        I paid fairly close to market value for the place at the time.

        In some parts of Australia it's very hard to pay that little. Congratulations.

        • sghetti on 23/09/2025 - 13:14
          +1

          Definitely not normal here either. I was extremely lucky regarding the situation with bidders. I definitely went into it feeling I had the upper hand as the only bidder in negotiating with the vendor.

          There were other places going for well over their advertised price over the past few weeks prior to snagging it.

  • Far Cough on 22/09/2025 - 22:52
    -1

    the seller does not need to sell it to you, even if you are the highest bidder

    • witsa on 22/09/2025 - 23:46
      +2

      They do if your bid is above the reserve price

      • Far Cough on 23/09/2025 - 00:17
        -3

        If that’s what you think.

        • happydude on 23/09/2025 - 13:03
          -1

          It's what the law thinks.

          Property and Stock Agents Regulation 2022 (NSW)
          18 Conditions of sale by auction—the Act, s 77
          (1) The following conditions are prescribed as applicable to the sale by auction of land or livestock—
          (a) the vendor’s reserve price must be given in writing to the auctioneer before the auction commences unless the auction relates solely to livestock,
          (c) the highest bidder is the purchaser, subject to any reserve price,

          • soan papdi on 23/09/2025 - 13:57

            @happydude: I see what you're saying but what's stopping the seller from putting in a reserve of 1 billion dollars, effectively canceling the idea. If the reserve is not publicly released prior to the auction, the law is quite toothless.

            • happydude on 23/09/2025 - 14:19

              @soan papdi: Why would the auctioneer waste their Saturday morning to do that? Their commission is paid on the sale.

              • soan papdi on 23/09/2025 - 14:30

                @happydude: My billion dollars is just an exaggeration of course but the idea still applies if the reserve is unreasonably high. This doesn't prevent a sale from happening, just that it happens behind closed doors.

                • Muppet Detector on 24/09/2025 - 19:10

                  @soan papdi: If a bid/offer doesn't meet the reserve or any other price the seller has in mind, he just rejects the offer he does not have to usually* accept it.

                  Generally speaking (always exceptions to rule in contract law) a reserve is really only a polite way of setting boundaries and saying "this is the minimum price I would like to achieve and I'm probably going to reject/not bother to accept any offer/bid below that.

                  Just a mental safety net for seller who has no self control and may be tempted to sell at lower price than he wants to or is otherwise required to.

                  Often comes up where more than one party has a financial interest (or caveat for example) in a thing for example - stops someone going rogue.

              • Muppet Detector on 24/09/2025 - 19:03

                @happydude: The point of that law was not the actual reserve.

                Only that reserve usually* applies if highest accepted offer (not otherwise withdrawn) does not meet reserve.

                So if reserve is

                $100

                Buyer offers $99

                Seller not compelled to sell unless he has decided to accept it.

                Sometimes seller cannot enforce reserve price.

                What if seller isn't the owner, for example?

                What if sale is as a result of court order or other lawful purpose?

            • Muppet Detector on 24/09/2025 - 18:55

              @soan papdi: The reserve price is not superfluous to the point under discussion.

              It's not even really relevant. That's only an exception if that bid was accepted ergo the winning bid.

              Until bid/offer is accepted, it's not even in the race.

              A bid/offer can be rejected at any time before acceptance.

              Seller can reject any bid/offer he wants, even if highest bid.

          • Muppet Detector on 24/09/2025 - 18:51
            -1

            @happydude:

            c) the highest bidder is the purchaser, subject to any reserve price,

            Highest bidder is only seller if his bid/offer was accepted

            If bid/offer is not accepted, that bid/offer is not even in the race to buy anything.

            Highest bidder is the purchaser if their bid was the highest bid that was accepted

        • Muppet Detector on 24/09/2025 - 18:48
          -1

          He is wrong. Well, not entirely right.

          He might be right if that bid/offer was accepted.

          Seller does not have to accept any offer/bid if he does not want to.

          Except for blatant discrimination, seller can reject or fail to accept any bid/offer that he wants to.

      • Muppet Detector on 24/09/2025 - 18:45
        -1

        No they don't.

        A bid is an offer.

        An offer must be accepted to be valid.

        Acceptance must be communicated.

        Seller can reject any offer (prior to acceptance) at any time for any reason.

        • happydude on 24/09/2025 - 22:24

          If the auctioneer says it's sold at the end of bidding, then it's sold. The offer is accepted.

          • Muppet Detector on 24/09/2025 - 22:28

            @happydude: Sure?

            I'm not sure why you're telling me that, I'm sorry?

            If there have been no bids/offers that have been accepted, he won't have anybody to say "sold" to.

            Not sure why he'd say "sold" if there was nobody to sell it to?

          • Muppet Detector on 24/09/2025 - 22:30

            @happydude: Is that you negging all my posts?

          • Muppet Detector on 24/09/2025 - 22:40

            @happydude: Hang on, I think I get what you're saying now.

            Sorry about that.

            Yes.

            If I make an offer, it just hangs around there until it
            a) expires
            b) is accepted
            c) is rejected
            d) is withdrawn.

            If none of that has happened when the auction is ended/ends, then yes, that offer is still out there so saying "sold" probably* does satisfy acceptance and acceptance must be communicated requirements.

            Obviously, most likely highest bid/offer would be the one accepted with any others being rejected.

            Note "most likely" as opposed to "always" or "definitely will" or "must" and so on.

  • MS Paint on 22/09/2025 - 23:14
    +1

    However the seller is only legally obligated at sell if it is above the reserve price.

    Huh? The auctioneer can go inside/call the vendor at anytime and renegotiate a price they are happy to sell at.

    Your last bid could be accepted as the sold price at any time (at least in Vic).

    Sounds to me like you've only attended auctions watching TV reality shows.

    • elgrande on 23/09/2025 - 06:26

      This.

      Reserve price can come down to your offer price and be declared to be on the market.

    • Muppet Detector on 24/09/2025 - 19:20

      Even if an offer/bid is above reserve, the offer has to be accepted.

      Is seller rejects or does not accept (or counter offer I suppose), he does not have to sell to anybody, even if that bid/offer is over reserve or indeed is the highest.

      Your last bid could be accepted as the sold price at any time (at least in Vic).

      As long as seller is lawfully permitted to alter reserve price, he can accept any offer at any time he wants (also presuming he is lawfully allowed to sell).

      Realistically, a reserve isn't much different to an invitation to treat/advertisement - just an indication that seller wants to sell something and this is sort of the price I'm thinking about - starting point for negotiations.

  • JimmyF on 22/09/2025 - 23:30

    However when I asked Gemini this "So at an auction in Australia if I win the auction at below the reserve price they don't need to sell it but I need to buy?"

    Correct — if the bidding is below the reserve price, the seller isn’t obliged to sell (unless they choose to).

    However, if the seller decides to sell, you’re obliged to buy.

    Once the bidding passes the reserve price, the sale is binding and the seller has no choice.

    • witsa on 22/09/2025 - 23:51

      Ok so you're agreeing that ai is wrong here?

    • Muppet Detector on 24/09/2025 - 19:24
      -1

      If seller accepted bid/offer, he does have to sell even if below reserve unless someone has some other right/claim on the property preventing this.

      However, if the seller decides to sell, you’re obliged to buy.

      Yes, cos this is seller accepting offer

      Once the bidding passes the reserve price, the sale is binding and the seller has no choice.

      Only if he accepts the offer/s

      Generally speaking, It doesn't matter when a bid/offer is made.

      A bid/offer must be accepted before it is even in the running.

  • JimB on 23/09/2025 - 00:53
    +5

    In reality, the contract to buy/sell is only binding when both the seller and buyer sign the contract.

    • Muppet Detector on 24/09/2025 - 19:26

      Not true in all circumstances, just saying.

  • ThithLord on 23/09/2025 - 08:04

    Tell us what happened and we can make a judgement call. Ain't deciphering AI slop

    • El cheepo on 23/09/2025 - 09:32

      They already did…

  • Cluster on 23/09/2025 - 10:43

    I buy at auctions every week. Whether you have to buy the item depends on the terms and conditions of the auction house, so you have to ask them.

    If you're referring to a house auction then the rules may be different again. You get extremely dodgy things like vendor bids and other actions I consider to be fraudulent.

  • wannagrababargain on 23/09/2025 - 14:16
    +1

    Real estate auctions have historically been a farce. It's not the same as a sheep auction.

    VIC and NSW approach things slightly differently. NSW have made rules to make the auction process appear closer to a sheep auction but if anyone has really tested this in court I don't know.

    Reserve price isn't what you think. It's not an immutable number set in stone, it can change at any time including in the middle of an auction. Only when the auctioneer says the property is "on the market" does any of the numbers being shouted at each other mean anything. They may duck back inside one or more times before this point (possibly to convince the vendor to change their reserve - either up or down depending on the vibe they're getting).

    • Muppet Detector on 24/09/2025 - 19:29

      FUN FACTS

      Sheep auctions are only a thing as a throw back to when people were selling their sheep stations.

      That's why there's that saying about "we're not playing for sheep stations"

      Sheep are property like any other live (or dead insuppose) animal.

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