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

Short answer: Usually yes, once a binding contract is formed. But the key is knowing when does that actually happen... This is where most people (and plenty of agents) blur the line.

Remember, auction rule terms can vary by state, but I'll keep this practical and focus on Melbourne and Victoria. This is general info, not legal advice – for anything hairy, you’d still want a property lawyer. Also, understand that agents and agencies can tweak the auction rules, to suit the situation, property, owner, etc.

Understanding the Auction Process in Melbourne and Victoria

1. An Auction Is Not a Contract

Legally, the auction event is just a way to find a buyer and a price. The binding part is when the contract of sale is signed by both the sellers and buyers. At a typical residential auction in Melbourne:

• The vendor signs the contract before the auction starts.

• The contract is on display.

• The highest bidder, when the hammer falls, is assumed to have agreed to buy on those terms listed in the contract,m.

• They sign immediately after the auction 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”

Being "over the reserve" does not necessarily mean it is a "Binging Sale". These are 2 important, but different milestone in a property auction in Melbourne.

In a property auction in Melbourne (including Victoria), two questions you need to know are:

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

2. Has the property been formally sold to you?

   
   

These are not the same thing. There are 3 importing stages you need to understand:

• The vendor can and do 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:

• The 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. The legal risk is significant, and their sales agents will go ballistic. Sales agents only get paid if it settles.

4. Dodgy 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 can be very rare, but it does happen. We were in one such auction. The hammer fell, we were declared the winner, but the vendor felt the price was still too low. The vendor tried to negotiate when we were in the house, awaiting the contract. Of course, we said no, and backed our buyers. It took a further 30 minutes of stalemate, before they [unwillingly] commit to the signature. It pays to have an expert on your side who know the rules.

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”.

Additional Considerations for Buyers

In addition to understanding the auction process and be familiar with the various forms of auctions, it is also critical to understand the rules as a buyer. In our example above, the vendor wanted another $50k, and our buyer was willing to negotiate and meet their demands before signing contract. We stood our grounds, and our persistence paid off for our buyer. We saved them an immediate $50k.

Understanding Your Rights

As a buyer, it's crucial to understand your rights during the auction process. Knowing when a binding contract is formed can save you from potential pitfalls. Always be prepared to act swiftly if things don’t go as planned. If you won the auction, and are in the house signing the contract, the adrenalin is still in your system and you are still all our to win it. Vendors sometimes, do ask for more. Trust me, while the adrenalin is still in your system, you will want that house and agree to it.

The Importance of Legal Advice

Engaging a property lawyer can provide peace of mind. They can help you navigate the complexities of auction terms and ensure that your interests are protected. This is especially important in a competitive market where every second counts.

Tips for a Successful Auction Experience

• Do Your Research: Before the auction, research the property thoroughly. Understand its value and the local market.

• Set a Budget: Determine your maximum bid beforehand. Stick to it to avoid overspending in the heat of the moment.

• Stay Calm: Auctions can be intense. Keep your composure and don’t rush your decisions.

  
  

Conclusion

Navigating the auction process in Victoria is tricky, but understanding the key elements can make it easier for you, as the buyer. Remember, once the hammer falls and the contract is signed, the vendor is legally bound to honour the sale. So, arm yourself with knowledge and don’t hesitate to seek legal advice when needed.

And if you’re looking for expert guidance, consider reaching out to Concierge Buyers Advocates. Our buyers advocates are here to support your property buying experience in Melbourne, helping you secure your dream home or investment property at the best price.

With the right support, you can navigate the auction process confidently and stress-free. Happy bidding!