Almost a fifth of homes going to auction in the first three weekends of Victoria’s new auction rules had a listed reserve above their previous price guide.
The legislation came into effect on October 16 and requires sellers to publish their reserve for at least seven days before auction or the end of a fixed-date sale.
Data from property listings app Homer shows that of 1263 houses that were due to go to auction in the first two weeks of the policy, 19.5 per cent had a listed reserve above the previous guide – which is allowed.
More than 70 per cent of reserves were within the guide, and 9.1 per cent below.
Homer chief executive and co-founder Henry Pedersen thought the fact the policy came into effect during a down market might obscure how often sellers hoped for a sale above their guide price.
“I think if this was done in a stronger market it wouldn’t be 19.5 per cent ... it would be 40, 60, maybe 80 per cent,” he said.
The policy was introduced to address underquoting, as revealed in this masthead’s Bidding Blind exposé, and provide transparency for buyers.
And it can shift how people think about their chances of buying a home.
Chloe Sheats and Oliver van Toledo turned up late to the auction of the three-bedroom Fitzroy home they would eventually buy because they were sure they couldn’t afford it.
After a single inspection of the 1860s bluestone house, they had noted the $950,000 to $1,045,000 price guide, and assumed it would sell for much more given the location and quality renovation.
They were buying with the 5 per cent deposit scheme, capped at $950,000, so when the house’s $950,000 reserve was revealed in the final week of the campaign, Sheats thought they would have a look.
“If the reserve had been anything above $950,000 … we probably wouldn’t have even dropped in to see what it went for,” the 27-year-old tech sales executive said.
But they did, and when the house passed in on a vendor bid of $920,000, they hung around. Within the hour they had bought it for the listed reserve.
“We [thought] we had no hope that it would pass in,” Sheats said.
She thought people’s perceptions could be shifting now reserves were public, and especially during the downturn.
“I think now when people see the reserve, they’ll start to think, ‘OK, that is what it will actually go for’, as opposed to a year ago when it was just … not even close.”
The selling agent, Nelson Alexander Fitzroy’s Rick Daniel, said his vendors were clear about setting a reserve that met the market, but he understood why others might shoot for a higher reserve in the week before auction to “protect their bottom line”.
He emphasised the difference between the price guide – shaped by recent sales and the agent’s experience in the market – and the reserve, which is the minimum price the vendor will accept.
“In 80 per cent of the cases, [Homer’s] data shows that the agent’s assessment is in line with where the owner eventually agrees to have their reserve,” he said.
Dr Kristle Cortés, associate professor at UNSW Business School, said sellers often took a while to adjust to a changing market, which could be why some were still setting reserves higher than the guide.
“They also have a sentimental attachment ... and maybe they’re just not willing to go below a certain amount,” she said.
She stressed that the policy began in a time of extreme change – falling prices, federal changes to the tax treatment of negative gearing and capital gains, and rates at an 18-year-high – so it was hard for buyers and sellers to land on a price.
Pedersen said Homer’s data showed 37 per cent of vendors ended up listing their reserve at the top end of the range, which could mean buyers were being “step-quoted” – nudged upward to the vendor’s real price – during the campaign.
“But at least now, with that week of the campaign where the reserve is publicised, it could reduce the costs buyers have to go through,” he said, avoiding building reports and pest inspections for houses they could never afford.
Long-time listed reserves advocate John Keating, founder and director of Keatings Real Estate, was unsurprised agents would use a low price guide to build interest before listing a higher reserve to drive up offers. He believed the best approach was to list reserve prices from the start of the campaign .
“I think when agents get their heads around how it can work, they will realise the benefits of the transparency,” he said.
“It’s a nonsense that you need all that time to be able to get feedback from the market.”
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