Further focus on reserve prices for auctions
A recent article in “The Age” dealt with situations where the reserve price of a property was higher than the advertising had suggested. The article described how the property had been advertised at between $1.3 to 1.4 million but at a later stage, was found to have a reserve of $1.75 million.
As all agents will now know, in the Authority they must provide a specific price for the property or provide a 10% range. The article referred to this problem being a “loophole” in the legislation. It is certainly a problem for estate agents where the reserve is outside the 10% range, but it is not a “loophole”.
There has been ongoing discussion in and out of Parliament whether a vendor should be required to either have their reserve price within the range, or make the reserve price publicly known. It was a decision by our elected representatives that vendors should not have to disclose the reserve price and it appears unlikely that the situation will change in the near future.
Our experience is that these situations can be extremely difficult for estate agents and can create a lot of ill will towards them. We can easily imagine a similar situation to that described in the article where bidding has reached $1.4 million and a prospective buyer asks the age old question “Is the property on the market?” only to have the agent reply “No” or “Not yet”. A astute bidder would understand that the Authority must contain a 10% range and also be aware of the advertised price range. The bidder could then ask, “Why is the property not on the market?” This could leave the auctioneer in the difficult position of having to explain that the vendor’s reserve price has not been met and it is not within the range contained in the Authority. This would be likely to cause disquiet amongst the purchasers and may also cause difficulties with the vendor.
In these circumstances, we suggest that the auctioneer has no choice but to explain that the reserve has not been met. They may also have to explain that the reserve is outside the 10% range.
We are aware that many agents have a policy they will not handle a property sale if the vendor’s expectation is unrealistic, and/or likely to be more than 15% above the agent’s suggested range.
Author: John Turnbull