The Block’s $3.45m reserve puts Victoria’s new auction rules to the test

O’Brien Mornington Peninsula director Kayn Luff said the new auction rules were unlikely to fundamentally change the show’s auctions, but have forced agents to have more realistic conversations with vendors earlier.

Under the new regulations, agents must publish a seller’s reserve price at least seven days prior or risk not going to auction.

This year, all five properties have been assigned the same $3.45 million reserve, below their advertised price guide of $3.6 million to $3.9 million.

Luff, who is selling The Block house four, said the disclosed reserves had helped generate buyer interest as they were relatively modest compared with the cost of replacing the homes.

“There’s been probably more uptake since they have disclosed a reserve for each of the properties,” Luff told REB.

He said the advertised price guide and reserve had sometimes been misaligned, potentially deterring buyers when the reserve exceeded the range they were given.

“What we were originally advertising as a price range was 3.6 to 3.9; the reserve was disclosed at 3.45. They’ve come in under.

“I think that’s helped the campaigns, in my opinion, to get more buyers engaged,” he said.

Yet, Luff said transparency alone would not guarantee a successful sale, particularly in a market where finding multiple buyers willing to pay more than $3.5 million for a property remained challenging.

“The issue right now in a challenging market is to try and find five buyers all on the same day prepared to pay $3.5 million dollars upwards.”

While Luff remains hopeful all five homes would sell, he said the disclosed reserves should not necessarily be mistaken for the properties’ market values.

He argued the reserves were set at a level that would give the auctions a chance to succeed while allowing contestants to profit from the extensive renovations.

“If anyone pays the reserve price, I think they’re getting a fairly good deal.”

Transparency won’t replace competition

For agents, Luff said the biggest adjustment under the new rules would be having conversations with vendors earlier to ensure reserves reflected market conditions.

He said the disclosure requirement wasn’t expected to change the fundamentals of bidding, with buyers’ competition still determining how far a sale price climbed above reserve.

“If you’ve got two people or three people or four people engaging in the auction and they all want it, the value is determined by how much they want it really,” he said.

“But if I’m the only buyer and all I have to pay is $3.45 million, then that’s all I have to pay.”

Luff said the same principles applied before mandatory reserve disclosure, with some vendors setting unrealistic reserves and later having to reduce them, while others had priced realistically and achieved results well above reserve.

“I don’t see it as being a huge difference to a normal auction apart from having those conversations with vendors earlier on to make sure that they’re in line with the market,” he said.

He also noted that auction volumes had been down, making the first results under the new rules an important test for the market.

The Block’s bigger challenge

According to Luff, the stakes have been different for The Block contestants, whose renovation efforts don’t translate into profit unless their properties sell above reserve.

Luff said that while a typical vendor would be pleased to reach their reserve, or even an additional $50,000 to $100,000, contestants selling at reserve would make no profit above that threshold.

“It’s our job to try and get hundreds of thousands above reserve for them to be successful because ultimately they don’t see a cent until it’s above reserve.”

He said the contestants’ emotional investment made the campaign different from a conventional sale, putting additional pressure on agents to achieve a result well above the reserve.

The auctions will also test whether the disclosed prices can attract genuine buyers rather than viewers hoping to experience the high-profile event.

Luff said the campaign had generated substantial inquiry, but identifying serious buyers had been one of the most time-consuming parts of the process.

He said much of the interest had come from people who wanted to buy the homes to live in, rather than investors bidding to win the show.

Ultimately, while the new rules may clarify price expectations, Luff said the result would still come down to buyer demand.

“The question is whether five buyers will be prepared to compete on the day, and whether that competition will push the homes far enough above their $3.45 million reserves to deliver the profits contestants are chasing.”