The question of what to do if you don’t want to accept the highest bid on auction day comes up quite often, particularly where people have been disappointed by their auction results. It’s understandable – this is your property, and you’ve put a lot of work into making it appealing to buyers! However, if the worst does happen and you find yourself wanting to refuse the winning bid at the end of the auction, there are two scenarios that have very different outcomes.
Scenario 1: Your reserve price has been met
In this scenario, the highest bidder has met or exceeded your reserve price! Congratulations! If you have set your reserve price properly, your property for sale has reached what you (and your agent) think it is worth.
When you set a reserve price with your agent beforehand, you need to be aware that this is the minimum bid that you are willing to accept. By setting your reserve price at that level, you are expected to accept an offer that meets or exceeds that reserve price. Remember, auctions do not have a cooling off period like private treaties, so you do not get a chance to back out once the contract is signed.
Scenario 2: Your reserve price has not been met
You do not have to sell to the highest bidder, as they have not reached your minimum.
This is the really disappointing scenario, but unlike the first, you do not have any legal obligations. If you are using vendor bids and have not used your legal limit yet, you may want to consider using a bid here to bump the offer closer to your reserve.
However, if this is not possible for whatever reason, you have two options according to the Real Estate Agents Authority of New Zealand: put the property “on the market” or decide to “pass in”.
Putting your property on the market means that your reserve price no longer applies. Bidding can still continue from this point, but the buyer with the highest accepted bid is then obligated to conclude the contract and purchase your property.
Passing in, however, concludes the auction with no sale occurring. This is a disappointing result, particularly after the weeks of work that both you and your sales team have put in.
The moral of these scenarios is that you should be sure of your reserve price. Speak to your local real estate agency to ensure that you know where to set your reserve to avoid disappointment at auction time.