How does an auction reserve price work?

Setting the reserve: vendor + sales agent agree on the reserve in writing typically 24-48 hours pre-auction, sometimes adjusted up or down on the morning of the auction based on inspection turnout + buyer feedback. Reserve is confidential, never disclosed to bidders during bidding. State Fair Trading laws (NSW Auctioneers Act 1991, VIC Auction Sales Act 1958) regulate the structure but not the level.

On-the-market call: when bidding reaches reserve, the auctioneer announces 'we are now on the market' or 'selling now'. This is the moment the dynamic shifts, bidding will sell the property if it stops. Pre-on-the-market bidding can be paused, withdrawn, or vendor-negotiated; post-on-the-market it's a binding sale to the highest bidder when the hammer falls.

Pass-in: when bidding stalls below reserve, auctioneer 'passes in' the property + names the highest bidder. That bidder gets first refusal at post-auction negotiation, typically for 30 minutes onsite. Vendor + sales agent confer privately, then come back with a counter-offer. If you walk, the property goes back on the market the next day at a price-guide reflecting the failed auction.

Reading reserve from auction behaviour: 3 vendor bids early = reserve is far above current bidding (usually 15-25% above the price guide). On-the-market called in the first 5 minutes = reserve was set conservatively + competition will close the gap. Long pause-points + auctioneer working hard for one more bid = reserve is slightly above bidding + close to clearing. Auctioneer just calling final increments without effort = reserve cleared early + the auction is winding down.