Auction Reserve Prices Explained: What Happens When Property Passes In
What is a reserve price, how does it differ from the price guide, and what are your options if a property passes in? Complete guide for Australian buyers.
What Is a Reserve Price?
The reserve price is the minimum amount a vendor (seller) is willing to accept for their property at auction. It's set privately between the vendor and their agent before auction day and is not disclosed to bidders.
If bidding reaches or exceeds the reserve, the property is declared "on the market" and will sell to the highest bidder. If bidding falls short of the reserve, the property "passes in" and does not sell under the hammer.
Understanding how reserves work is fundamental to bidding confidently at auction.
Reserve Price vs. Price Guide
These are two different things, and confusing them is one of the most common mistakes buyers make.
Price Guide
The price guide is the range the agent advertises to attract potential buyers. For example, "$950,000 – $1,050,000." It's designed to give buyers a general indication of value, but it's not a guarantee of where the property will sell.
In practice, properties regularly sell above their price guide. Consumer protection laws require the guide to reflect the agent's genuine estimate of value, but the final sale price depends on what bidders are willing to pay on the day.
Reserve Price
The reserve is the vendor's private bottom line. It might sit at the top of the price guide, above it, or occasionally within it. The reserve can also be adjusted on auction day — vendors sometimes lower it mid-auction if they see that bidding is slowing down near their original figure.
How They Relate
| Scenario | What It Means |
|---|---|
| Reserve is within the price guide | The guide is realistic and the property may sell within the advertised range |
| Reserve is above the price guide | The property will only sell above the advertised range — sometimes called "underquoting" |
| Reserve is below bidding | Once bidding passes the reserve, the auctioneer declares the property "on the market" |
How the Reserve Affects Auction Day
Before the Reserve Is Met
The auctioneer's job is to drive bidding up toward the reserve. During this phase:
- The auctioneer may place vendor bids (bids on behalf of the seller) to keep the auction moving
- Vendor bids must be announced — the auctioneer should say something like "the bid is with the vendor" or "I'm bidding on behalf of the seller"
- The property is not yet for sale — even if you're the highest bidder, the vendor isn't obligated to sell
When the Reserve Is Met
The moment bidding reaches the reserve price, the auctioneer will announce: "The property is on the market." This is one of the most important moments of the auction. It means:
- The property will definitely sell to the highest bidder
- There are no more vendor bids
- Competition is now purely between real buyers
This is often when bidding intensifies, as everyone knows the property is going to sell.
If the Property Passes In
If the auctioneer can't get bidding to the reserve, the property "passes in." What happens next:
- The highest bidder gets first right to negotiate privately with the vendor
- This negotiation happens immediately after the auction
- Other interested parties may also get a chance to negotiate if the highest bidder can't reach agreement
- The property effectively becomes a private sale
Being the highest bidder when a property passes in can actually be advantageous — you're negotiating one-on-one instead of competing against multiple bidders. In this scenario, you may also gain access to a cooling-off period that isn't available at auction.
How to Research the Likely Reserve
While you can't know the exact reserve beforehand, you can make informed estimates:
1. Study Comparable Sales
Look at what similar properties in the same area have sold for recently. Recent sales within 500m of the property in the last 3 months are the most relevant. This gives you a baseline for market value.
2. Analyse the Price Guide
Agents must provide price guides that reflect their genuine estimate. A property guided at $1.1m-$1.2m with comparable sales around $1.25m suggests the reserve might sit around $1.2m-$1.3m.
3. Ask the Agent
You can ask the selling agent directly: "Do you expect the reserve to be within the price guide?" They can't tell you the exact figure, but their response (and body language) can be informative.
4. Attend the Pre-Auction Campaign
Go to open inspections and pay attention. If the agent adjusts the price guide upward during the campaign, it's a sign of strong interest and the reserve may be higher than originally expected.
Vendor Bids Explained
Vendor bids are a legal mechanism that allows the auctioneer to bid on behalf of the seller to get the auction moving. Key rules:
- Vendor bids must be clearly announced as such
- They can only be placed before the reserve is reached
- Once the property is "on the market," no more vendor bids are allowed
- The number of vendor bids varies by state (in NSW, there's no limit; in Victoria, only three vendor bids are allowed)
If you notice the auction starting with a vendor bid, it usually means no real buyer was willing to open the bidding at that level.
State-by-State Reserve Rules
Reserve price regulations vary slightly across Australian states:
| State | Key Rule |
|---|---|
| NSW | No limit on vendor bids. Reserve must be set before or during auction. |
| VIC | Maximum 3 vendor bids. Reserve must be set before auction or by declaration during. |
| QLD | Vendor bids must be announced. Property must be offered without reserve or reserve must be disclosed before auction if required. |
| WA | Vendor bidding rules vary. Less regulated than eastern states. |
| SA | Similar to VIC. Vendor bids must be clearly identified. |
Strategy: Using the Reserve to Your Advantage
Know Your Limit, Not Theirs
Don't try to guess the reserve and bid to that number. Instead, set your own maximum based on what the property is worth to you and what you can afford. Use Smart Bid to define your comfort, stretch, and limit zones based on your finances.
Watch for the "On the Market" Signal
When the auctioneer announces the property is on the market, take a mental note of the price. This is the vendor's minimum — anything above this is profit for the seller and competition between buyers.
If It Passes In, Negotiate Smart
If you're the highest bidder and the property passes in:
- Don't immediately offer more. The vendor needs to sell, and the auction result has shown them the current market appetite.
- Start negotiations close to your final auction bid
- You now have the advantage of private negotiation rather than public competition
- Consider requesting conditions (building inspection, finance clause) that aren't available at auction
Key Takeaways
- The reserve price is the seller's minimum — it's private and not the same as the price guide
- "On the market" means the reserve has been met and the property will sell
- Vendor bids are legal and must be announced, but they're not real buyer interest
- If a property passes in, the highest bidder gets first negotiation rights
- Focus on your own budget limits rather than trying to guess the reserve
Set your auction budget zones in advance with Smart Bid — know exactly where you stand at every stage of the bidding.