Auction Rounds Explained: Reserve Price Drops

When a bank-auction property fails to sell in the first auction, it does not disappear. It returns in a second round, and even a third round, with a lower reserve price each time. For buyers in Kuala Lumpur and Selangor, understanding these auction rounds is the key to securing a property below market value.

In Malaysia, bank auctions are governed by the Proclamation of Sale and a set of conditions known as LACA (Land Auction Conducting Agreement). When a borrower defaults on a home loan, the bank may repossess and sell the property via auction. The initial reserve price is set based on an appraisal or the outstanding loan amount. If no one bids, or the highest bid is still below the reserve price, the auction is declared unsuccessful.

How the Auction Process Works

The entire process starts with a Proclamation of Sale. This document contains important details such as the date, time, venue, and the reserve price. Bidders must usually pay 10% of the reserve price as a deposit at the time of the auction if their bid is successful. The auctioneer will then open the floor and accept bids. If the reserve price is met and no higher bid is made, the property is sold to the highest bidder.

But if the property is not sold, the bank has the right to bring it back for another auction round.

First Auction Round: The Starting Point

The first auction round, also known as the first call, is where the property is offered at its initial reserve price. This price is often close to the current market value or the outstanding loan amount. Because the asking price is relatively high, the first round may attract limited interest. Serious buyers are still watching, but many wait for a later round hoping for a lower price.

If no buyer meets the reserve price in the first round, the property is marked as unsold. This is not a failure; it is simply the beginning of a cycle designed to eventually clear the debt.

Second Auction Round: A Second Chance

The second auction round is the next opportunity to bid. By this time, the bank will usually revise the reserve price downwards. The reduction is intended to generate more interest and increase the chance of a successful sale. For buyers, this round can offer a genuine discount compared to the first round.

However, you are not the only one watching. As the price drops, more bidders may appear. The final selling price could still be pushed up by competition. It is important to set a ceiling bid before the auction starts.

Third Auction Round and Beyond

If the property still does not sell after the second round, it may proceed to a third auction round. The reserve price is typically reduced again, creating an even more attractive entry point. Some properties may attract very strong interest at this stage because the asking price can be far below the market value.

Do note that not all properties reach a third round. The bank may choose to withdraw the property or pursue other methods. But when a third round does happen, it often represents the most affordable opportunity. That said, the risks can also be higher, such as hidden repairs or title issues that the bank has not solved.

What to Check Before Bidding in Lower Rounds

A lower reserve price is tempting, but it comes with responsibilities. Before you bid in any auction round, especially the second or third, you must carry out your own due diligence. This includes examining the Proclamation of Sale, checking the land title, and visiting the property site if possible. You should also be aware of the existing occupants. If the property is still occupied, eviction procedures can take time and money.

It is also wise to budget for additional costs. These may include legal fees, stamp duty, and other disbursements. The auction price is not the final cost.

Smart Strategy for Auction Rounds

For many buyers, the second or third round offers the best value, but you must be prepared to act quickly. Set your maximum bid based on market research and stick to it. Avoid getting caught up in auction fever. Also, ensure you have the funds ready to pay the deposit and the balance within the required timeline, typically within 90 to 120 days from the auction date.

BidNest specialises in lelong properties in Kuala Lumpur and Selangor. Our listings include details of the auction round and the reserve price so you can compare and decide. If you need guidance, contact our agent Peter Tan. He can help you evaluate the risks and opportunities of each auction round.

Browse the latest auction listings on BidNest today and take the first step toward owning a property below market value. If you need personal advice on auction rounds, reach out and we will assist you throughout the bidding process.