Definition
A Reserve Price is the confidential minimum price that a seller is willing to accept for a property at auction. It is agreed between the seller and the real estate agent before the auction begins and represents the lowest acceptable sale price for the property.
The reserve price is not disclosed to buyers during the auction. If bidding does not reach the reserve price, the property will not be sold and may be passed in. Once bidding meets or exceeds the reserve price, the property is typically declared “on the market”, meaning it will be sold to the highest bidder.
Where Reserve Prices Apply
Reserve prices are used specifically in auction-based property sales and form a key part of the auction process in New South Wales.
Common situations where reserve prices apply include:
Residential Property Auctions
Most homes sold by auction have a reserve price set by the seller before bidding begins.
Investment Property Auctions
Property investors selling rental or development properties may also set reserve prices to ensure the property is not sold below an acceptable value.
Mortgagee or Forced Sales
Even when lenders sell repossessed properties at auction, a reserve price may be set to protect the minimum acceptable return.
Commercial Property Auctions
Reserve prices are also used in auctions involving commercial real estate or development sites.
How the Reserve Price Is Determined
Before the auction, the seller usually works with the real estate agent to determine a suitable reserve price based on market evidence.
Factors often considered include:
Comparable Property Sales
Recent sales of similar properties in the same suburb or neighbourhood.
Current Market Conditions
Supply and demand, buyer interest, and local market trends.
Property Features and Condition
The size, layout, location, and quality of the property.
Buyer Interest During the Campaign
Feedback from inspections and enquiries during the marketing campaign may influence the final reserve price.
In some cases, the seller may adjust the reserve price shortly before the auction begins after discussing buyer interest with the agent.
What Happens When the Reserve Price Is Reached
During the auction, the auctioneer monitors bidding and may consult with the seller as the bidding approaches the reserve price.
Once bidding reaches or exceeds the reserve:
The Property Is Declared “On the Market”
The auctioneer may announce that the property is on the market, indicating that the property will now be sold.
The Seller Can No Longer Withdraw the Property
Once the reserve is met and the property is on the market, the property must be sold to the highest bidder.
Bidding Continues Until the Final Bid
Buyers may continue competing with higher bids until the auctioneer declares the property sold.
Contracts Are Signed Immediately
The successful bidder signs the Contract for Sale and typically pays a 10% deposit on the day of the auction.
Because auction sales in NSW do not include a cooling-off period, the transaction becomes legally binding immediately once the auction concludes.