HOME > BLOG > Buying and Selling > Why auction reserves are sometimes higher than advertised price guides

Ever been frustrated and confused at auction on finding out that a home’s reserve is actually higher than the price guide? How can this be? We explain.

Underquoting has been a dirty word in the Australia property market in recent times. The old, vague system of “offers over” a certain price led to all sorts of confusion for buyers. Modest homes in key markets advertised with “offers over $1 million” were often selling well above this - sometimes $1.5 million or more - making it very difficult for buyers to understand a home’s true worth.

However, since more realistic price guide reforms were introduced, the margin between a property’s advertised price and final selling price has narrowed a lot more. Nowadays, a home may be advertised with a price guide of between $900,000 and $950,000 with a final price not expected to outrageously exceed the maximum by too much.

Rules state that the guide must fall within 10 per cent of the lower and upper end of the expected price. It seems fairer – but not necessarily all the time. On the day of the auction the reserve may still actually be higher – even much higher - than $950,000. So what gives?

Did You Know?

Turns out that the reserve price can actually be whatever the vendor decides on the day of the auction. Legally it’s their right to do so. This is regardless of the indicative price range that prospective buyers may have been given prior. Vendors are not obliged to take this range into account when making a decision.

Given the high number of auctions in Melbourne, a spokesperson for Consumer Affairs Victoria recently further explained the situation as this:

The reserve price can be set as late as auction day and may be influenced by the level of interest in the property. Additionally, as the owner of the property, the vendor is within their rights to change the reserve price and refuse an offer at or above the reserve price at any time before contracts are signed.

It’s no wonder that first home buyers in particular, with not a lot of cash to spare who could be forking out for fruitless pest and building inspections, might be feeling frustrated and confused seeing as the vendor’s right seems to contradict the guidelines.

It’s also not a mandatory requirement to even provide a price guide, so some agents might decide that the best strategy for them is to not provide one at all. Although given that agents who are accused of underquoting now face harsh penalties, many are now being more realistic about prices nowadays.

State Custodians senior manager Anouska Linz says the best strategy to working out house prices is to study the sales guide for homes that have recently been purchased.

If you are looking for a three-bedroom home in a certain area, look up the sales prices for everything similar that fits the bill in recent times. If they’re all going for around $1.2 million to $1.4 million then that’s an indication of market forces in the suburb. Also expect to budget a little higher than the top of the average if you’re in a fast-paced market and talk to agents who you feel will give you more of a true picture. That way you will have a better idea of the final outcome.

  • Use a calculator to get an estimate of how much you can borrow.
    Try one here

  • See if you qualify. To get a more accurate idea of how much you can borrow with State Custodians,
    click here

  • Call our Lending Specialists and they can do the calculation for you over the phone plus answer any questions you have at the time. Talk to us on 13 72 62