Property Auctions - Will the Property Sell When the Auction Price is Over the Reserve Price?

Short answer: usually yes once a binding contract is formed – but the key is when that actually happens.

And this is where most people (and plenty of agents) blur the line.

Auction terms do vary according to states, so, I'll speak in Victorian terms and keep it practical. This is general info, not legal advice – for anything hairy you’d still want a property lawyer.

Auction Process in Victoria

1. An auction by itself is not the contract

Legally, the auction event is just the mechanism to find a buyer and a price.

The binding bit is the contract of sale.

At a standard residential auction:

• The vendor signs the contract before the auction starts.

• The contract is on display.

• The highest bidder, when the hammer falls, is taken to have agreed to buy on those terms.

• They sign immediately and pay the deposit.

Once that’s done, you have what the law cares about:

➡️ a signed, written contract between vendor and purchaser.

From that point, the vendor is legally required to honour it, just like the buyer is.

If the vendor refuses to settle, they’re potentially in breach of contract.

2. The crucial distinction: “over reserve” vs “binding sale”

There are two separate questions:

1. Has bidding gone over what the vendor said their reserve was?

2. Has the property been formally sold to you?

Those are not the same thing.

A few realities:

• The vendor can change their reserve before the property is announced “on the market”.

• You could be over the original reserve, but if the auctioneer never says “on the market” and never knocks it down, no sale is formed.

• Until the hammer falls and contracts are signed, there’s no binding obligation on the vendor to sell to you at that number.

So:

• Over reserve but not called “on the market” + no fall of the hammer

  • → ugly, but usually no contract yet.

• Announced “on the market” + hammer falls in your favour + contract signed

  • → binding contract; vendor is legally committed.

    
    

3. Once the hammer falls and the contract is signed

In the normal clean scenario:

• Auctioneer declares “we are on the market and selling”.

• Bidding finishes, hammer falls.

• You sign the contract and pay the deposit.

  
  

At that point:

• Vendor is legally required to complete settlement on the agreed terms.

• If they refuse, you can (through a lawyer):

  • Pursue specific performance (forcing them to complete), and/or

  • Seek damages (your losses caused by their breach).

In practice, vendors very rarely try to back out after a strong auction result because the legal risk is significant and their sales agents will go ballistic. They only get paid if it settles.

4. Dodgy edge case: what if they try to walk after the hammer?

If:

• The property is clearly called “on the market”,

• The hammer falls to your bid,

• You’re ready, willing and able to sign and pay the deposit, and

• The vendor suddenly refuses to go ahead,

then you’re in “get a lawyer now” territory:

• You’d want a solicitor to review all the facts quickly.

• If they agree a contract was formed, they can fire off a very firm legal letter.

• Ultimately it’s a Supreme Court/County Court–type issue if it escalates.

But again, this is very rare. The more common games are played before the hammer (moving reserves, not calling “on the market”, passing in and trying again).

5. So, are they “legally required” to honour it?

Put simply:

• Before the hammer falls and before contracts are signed:

  ❌ No, the vendor is not legally required to sell to you, even if bidding has gone above some earlier “reserve” they mentioned to the agent.

• After the hammer falls in your favour, the property has been announced “on the market”, and the contract is signed:

  ✅ Yes, the vendor is legally required to honour the contract (just like you are).

The law cares about the signed contract, not your impression of “we went over reserve, so they must sell”.