• Some Sydney and Melbourne houses have been selling for more than a million dollars above the reserve price as auctions continue to attract crowds.
• With property prices on the rise and sales moving quickly, the trend of sales coming in well above reserve appears to have become a more common one.
• According to Louis Christopher, founder of SQM Research, it is being driven by pent-up demand as well as instances of underquoting – for both legitimate and illegitimate reasons.
• Visit Business Insider Australia’s homepage for more stories.

Losing at an auction can be frustrating for would-be homebuyers at the best of times, but being outbid by seven figures is in the realm of parody.

Over the weekend, one five-bedroom house in the Western Sydney suburb of Mount Vernon went for $5 million, a far cry from the $4 million reserve quoted to interested parties. After the sale, the agent duly noted that the “unexpected” result was a sign of an “absolutely crazy” market, Domain reported.

As if to drive the point home, it wasn’t the only example. The same weekend in Melbourne, an auction in Brighton pulled off an almost identical feat. With an opening bid of $4 million flirting with the reserve price, the final bid came in at $5.18 million after the winner beat out three other bidders.

To add insult to injury, the successful bidders intend to tear down the three-bedroom home immediately and build something else.

The market is undeniably hot

Dizzying sale prices however like these however have become increasingly common, as homebuyers compete in a quick-moving market.

The demand is reflected in auction clearance rates hovering around 80% nationally, and sale prices that continue to rise right around the country.

“There are simply more buyers absorbing the stock available,” Louis Christopher, founder of investment research house SQM Research, told Business Insider Australia.

“A new listing will come onto the market and get sold very quickly, that’s one issue.”

As far as temperature checks go, a sale $1 million over reserve is surely one indicator that the market is running very hot. There are countless more examples from the last six months of homes overshooting a price guide by hundreds of thousands of dollars.

Record low interest rate are driving new lending records each and every month as the burden of mortgage repayments falls. Armed to the teeth with credit, a flood of buyers are eager to find their new home and under pressure to finalise a deal quickly.

Auction sales subject to speculation of underquoting

However, while strong pent-up demand is helping drive sales, it is just one part of the reason that bids are leaving reserve prices in the dust.

Another Melbourne house, which went for nearly $2 million above reserve, is now the subject of a complaint against the real estate agent.

Lodged with Consumer Affairs Victoria, buyer’s agent David Morrell alleges Kay & Burton agent Grant Samuel deliberately underquoted, according to the AFR. Samuel for his part denies the charge, arguing there was no good comparable sale and that a lower reserve was due to heritage issues.

Business Insider Australia does not suggest any wrongdoing on the part of Samuel or other agents selling houses well above reserve.

However, Christopher does note that generally in a fast-moving market there may be a greater temptation for agents to cross lines.

“I do believe there is some underquoting going on in the market but the tricky part is proving that has happened deliberately,” he said.

“I’m not saying this is industry wide but there are some bad apples who do this.”

The top end of the market can be difficult to value

Noting that underquoting has improved with the introduction of new laws, Christopher also points out a third legitimate factor behind auction blowouts on multi-million dollar homes.

“It’s easy to be out 10% or more because the market is moving so quickly and there are so few sample sales at that end of the market on which to make a valuation,” he said.

“Many multi-million dollar homes tend to be sold via private treaty or by tender as well, so there’s not always a good guide for how one might sell at auction.”

What’s your recent experience been like with the property market? Get in touch at [email protected]

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