What is Auction Reserve Price and Its Impact on Lelong Property Malaysia Buyers?

In the Malaysian property auction market, the auction reserve price is one of the most important factors that determines whether a property is a good deal or a potential risk.

The reserve price is the minimum price at which a lelong (auction) property can be legally sold. It is fixed by the bank (for loan-default auctions) or the High Court/Land Office (for court auctions), and it plays a major role in how buyers make decisions, evaluate risks, and calculate potential profits from auction purchases.

Many lelong buyers enter the market with the hope of getting undervalued properties. But understanding how the reserve price works—how it is determined, how it changes over time, and how it influences competition—is crucial before placing any bid.

The reserve price can be your greatest advantage… or your biggest trap if you don’t understand how it truly works.

How Is the Auction Reserve Price Determined?

The reserve price for lelong properties in Malaysia is not random. It is calculated based on several standard methods used by banks, valuers, and the court.

Here’s a step-by-step breakdown of how the reserve price is usually set:

1. Market Valuation (Current Market Value)

A licensed property valuer conducts an inspection and prepares a valuation report.

This report determines:

• the property’s current market value,
• its condition,
• the surrounding transaction prices,
• and the expected selling price in the open market.

The reserve price is usually set lower than the current market value to attract bidders.

2. Property Condition

If the property is:

• damaged,
• poorly maintained,
• occupied by tenants,
• or locked and inaccessible,

the valuer may reduce the valuation. This affects the reserve price directly.

3. Location and Demand

Properties in hot areas (KL, PJ, Penang, JB) usually have reserve prices closer to true market value. Properties in low-demand or rural locations may start with much lower reserve prices to attract buyers.

4. Outstanding Charges & Legal Issues

If the unit has:

• unpaid maintenance fees,
• unpaid cukai tanah/cukai pintu,
• structural issues,
• renovation complications,
• or pending strata title problems,

the reserve price may be set lower to reflect these risks.

5. Forced Sale Value (FSV)

Most banks calculate the reserve price based on Forced Sale Value (FSV) usually 20–30% below market value.

This price reflects the fact that auction properties must be sold quickly, without warranties, and often without access for viewing.

How Does the Auction Reserve Price Work in Malaysia?

Once the reserve price is set, it becomes the starting bidding price for the upcoming auction.

Here’s how the process works:

1. First Auction (Lelong Pertama)

• Property is auctioned at the original reserve price.
• If someone bids above the reserve price, the highest bidder wins.

2. If No One Bids, The Price Drops for the Next Auction

In most cases:

• Reserve price drops 10% after each unsuccessful auction.

Example:

Auction Round	Reserve Price
1st auction	RM500,000
2nd auction	RM450,000
3rd auction	RM405,000
4th auction	RM364,500

Some properties drop up to 30%–40% after a few rounds of unsuccessful attempts.

3. Number of Drops Allowed

Depending on the bank or court rules:

• Some properties are allowed multiple price drops.
• Others are pulled back and revalued after a certain number of auctions.
• Rare cases may reset the price completely.

4. Bidding Competition Can Drive Prices Up

Even though the reserve price starts low, actual bidding may go way above market value if the property has high demand. This is why knowing how to evaluate the reserve price is essential.

4 Factors Driving the Use of Reserve Price in Lelong Auctions

The reserve price is not just a number. It sets the tone for the entire auction strategy for banks and buyers.

Here are the key factors that shape the reserve price system:

1. Encouraging Buyer Interest

A lower reserve price:

• creates excitement,
• encourages competitive bidding,
• attracts more participants,
• and increases the chance of selling the property quickly.

Banks prefer this because they want to recover the outstanding loan amount without delay.

2. Reflecting Market Reality

Reserve prices need to match economic conditions.

When the market is slow:

• prices usually start lower,
• and drop faster after each unsuccessful auction.

When the market is hot:

• banks may start reserve prices closer to true market value,
• knowing buyers will outbid each other.

3. Helping Banks Recover Debt Quickly

Auction is the final step after a borrower defaults on a loan.

Banks aim to:

• recover outstanding loan amounts,
• reduce holding costs,
• avoid long-term non-performing assets (NPA).

A strategic reserve price helps them sell units faster.

4. Guiding Buyers’ Expectations

Many buyers enter auctions hoping for “super cheap” deals.

The reserve price acts as a realistic guide, signalling:

• the property’s estimated worth,
• the actual demand around the area,
• and the number of drops needed before it becomes a “great deal.”

The Impact of Reserve Price on Lelong Property Buyers in Malaysia

Just like any investment strategy, the reserve price has both positive and negative impacts on buyers.

Positive Impacts

1. Opportunity to Buy Below Market Value

The biggest attraction of auctions is the potential to buy good properties at prices significantly lower than market value.

A reserve price that drops 20–40% means:

• instant equity,
• higher ROI,
• and lower upfront capital.

2. Higher Potential Profit

If you buy a property at 30% below market value, you already have built-in capital gain.

Investors can:

• renovate and flip,
• rent out for cash flow,
• hold for long-term appreciation.

3. Clear Price Benchmark

Unlike sub-sale where prices can be negotiable or inflated, reserve prices give buyers a transparent starting point.

You know:

• how many times the property failed to sell,
• how much it has dropped,
• and whether the price is fair.

Negative Impacts

1. High Competition from Other Buyers

Lower reserve prices attract more bidders.

In hot locations:

• properties may end up selling above market value,
• wiping out the supposed “good deal.”

Some buyers lose money due to emotional bidding.

2. No Access to Viewing

Most auction properties cannot be viewed internally.

This means you are bidding blind.

Possible issues:

• severe damage inside,
• illegal tenants,
• unapproved renovations,
• pest infestation,
• structural cracks.

A low reserve price may hide big repair costs.

3. Buyer Must Pay Hidden Outstanding Charges

Even if you win at a low reserve price, you may still need to settle:

• unpaid maintenance fees,
• sinking fund arrears,
• utility bills,
• cukai taksiran,
• cukai tanah,
• eviction costs,
• renovation repairs.

Sometimes these hidden costs wipe out all your “auction savings.”

4. Reserve Price May Drop Too Slowly

Some properties drop only 5% or 10% after each failed auction.

This means:

• the price may still be too high,
• and waiting for the next auction may take months.

Buyers may lose time or miss better deals elsewhere.

5. Risk of Overpaying

If you bid aggressively due to a low starting price, you might end up paying:

• more than market value,
• higher than sub-sale transacted price,
• or more than the property is worth after repairs.

This defeats the purpose of buying at auction.

Is a Low Reserve Price Always a Good Deal?

Not necessarily.

A low reserve price may mean:

• the property is badly damaged,
• serious legal complications,
• low-demand area,
• past auction failures,
• difficult occupants,
• structural problems.

Buyers must evaluate carefully:

• market research,
• nearby transacted prices,
• surrounding developments,
• possible repair or legal costs.

A “cheap” auction property can become expensive if you underestimate the risks.

Alternatives to Bidding at Reserve Price Auctions

For those who find auction risks too high, here are safer alternatives:

1. Sub-Sale Properties (Negotiable, Easy Viewing)

You can inspect the unit, negotiate the price, check the condition, and deal with sellers legally.

2. Undercon Properties (New, Safe, No Repairs Needed)

Developers offer:

• rebates,
• freebies,
• low entry cost,
• warranty (Defect Liability Period – DLP).

Prices may be higher, but the overall risk is much lower compared to auctions.

3. Buying Properties After Several Auction Drops

Instead of bidding early, some buyers monitor auctions and wait until the reserve price drops multiple rounds before entering. This reduces risk and increases profit margin—if the property is still unsold.

Conclusion

The auction reserve price is one of the most powerful factors that shape the success of lelong property investment in Malaysia.

It influences:

• buyer confidence,
• bidding strategies,
• profitability,
• and risk exposure.

While a low reserve price provides opportunities to buy below market value, it also brings potential risks such as hidden costs, structural problems, and intense competition.

Understanding how reserve prices are determined, how they drop, and how they affect profitability is crucial before entering any auction.

Auction properties can be highly rewarding but only if buyers do their research, evaluate risks carefully, and avoid emotional bidding.

If done right, the reserve price can be your entry point to a highly profitable investment. If done wrong, it can become an expensive mistake.

Other Article:

• Complete Guide to Property Auctions in Malaysia
• Top 5 Risks in Buying a Lelong House in Malaysia And How to Protect Yourself
• Top 14 Mistakes to Avoid for First-Time Auction Property Buyers in Malaysia