Failed Property Auctions Cost Sellers Thousands And The Stigma Takes Six Months To Fade, UNSW Research Finds

Homes that fail to sell at auction subsequently sell for about 1.3 per cent less than comparable properties sold by private treaty, according to new research from UNSW Business School, translating to a loss of roughly $9,000 to $10,000 based on average home prices.

The study, published in the Review of Finance, analysed more than 480,000 residential property transactions in New South Wales and Victoria between January 2007 and December 2019. It found that around one in five auctions in Australia end without a sale, and the financial consequences for those sellers are larger than many appreciate.

By contrast, a successful auction delivers a premium of only around 0.7 per cent, or about $2,000 to $2,500 compared with private treaty sales. When the risk of failure is properly accounted for, the net expected advantage of choosing auction narrows to just 0.3 per cent.

“What surprised me most was how little attention is paid to the prospect of failure in the selling process,” observed Dr Kristle Cortes, Associate Professor in the School of Banking and Finance at UNSW Business School.

“There is a lot of attention on successful auctions, especially those with bidding wars that sell for far above the reserve price. It is as if failure isn’t an option. Yet, many homes fail to sell at auction. And there is absolutely no mention of the risk of selling a home for a discount when deciding on which selling method to choose.”

Isolating the failure effect

The research focused specifically on properties that sold more than once, allowing the researchers to compare the same home across different sales and isolate the effect of auction failure from underlying property characteristics.

To confirm that the price penalty was caused by the failure itself rather than by some underlying flaw in the property, the researchers used two external factors that could trigger auction failure for reasons unrelated to the home’s quality.

The first exploited rainfall. Bad weather on auction day discouraged bidders from attending, raising the probability of failure. The second identified sellers of what the researchers called “the worst house on the block”, properties whose size, bedroom count and bathroom count fell more than one standard deviation below the neighbourhood average. These sellers were prone to anchoring their reserve price on nearby homes that were not genuinely comparable, leading them to set expectations too high.

In both cases, homes sold for less after a failed auction. The finding that even failures caused by bad weather led to price penalties pointed firmly to the failure event itself as the source of the discount.

“Auctions rightly fail due to low demand,” Dr Cortes noted. “But we also show that auctions fail less with more experienced selling agents. Those agents understand how important it is to find enough prospective buyers to avoid an auction failure.”

Stigma and seller discouragement

The research identified two psychological mechanisms that work together to push prices down after a failed auction.

The first relates to stigma among potential buyers. When an auction fails, it becomes a matter of public record. Prospective buyers are informed when a property listing status is updated, and the property acquires a reputation for having been rejected. Even buyers with no direct knowledge of the auction may infer that something is wrong with the property.

The second mechanism concerns seller discouragement. Having endured a public failure, sellers become less willing to hold out in subsequent negotiations, accepting less than they might otherwise have.

“A failed auction is a very public signal,” Dr Cortes explained. “Even though the reasons for failure are often ambiguous, buyers may infer that there is ‘something wrong’ with the property, creating stigma. At the same time, sellers may feel discouraged after a visible failure and be more willing to concede in subsequent negotiations. Both forces push prices down, even when the property itself has not changed.”

Repeat failures and zero-bid penalties

The data revealed that the penalties compound with repeat failures. Properties that failed multiple auctions sold for an additional 1.8 per cent less than those that failed once. Those that attracted no bids at all received prices about 1.7 per cent lower than single-failure cases.

Failures in hot markets, where demand was high and auction failure was unusual, still carried larger discounts because the surprise of the outcome intensified the negative signal.

The research also uncovered a pattern pointing directly to the psychology of the negotiating table. After a failed auction, properties were 8.2 percentage points more likely to sell just below a round-number price threshold, such as multiples of $50,000, than those sold by private treaty. The finding suggests that discouraged sellers are losing ground in the final stages of negotiation over differences that relate more to perceptions than to real market value.

The six-month fade

The price penalty from a failed auction is not permanent, but it takes time to dissipate. The discount gradually diminished and lost statistical significance for properties sold more than six months after the auction failure.

“The fact that the discount fades suggests that stigma plays a key role,” Dr Cortes observed. “As time passes, new buyers enter the market who are less aware of the failed auction, and the negative perception gradually dissipates. If the discount were driven purely by information about the property’s quality, we would not expect it to disappear over time.”

Not every seller has six months to wait, however. Those under pressure to sell quickly due to financial constraints, a property purchase already under contract or other life circumstances face a more difficult position.

What sellers should weigh up

The research did not conclude that auctions are the wrong choice. They do generally deliver higher prices on average for sellers who succeed. But the odds are more unevenly stacked than many sellers appreciate, with the upside of success smaller than the downside of failure, particularly in the short term.

Certain sellers and property types face greater exposure. Properties harder to compare with nearby homes, such as those with unusual configurations or features not shared by neighbouring properties, are more vulnerable to the reserve-price anchoring problem. Units also tend to carry larger discounts than houses when auctions fail.

“Sellers should understand that auction failure is not rare, and it is not costless,” Dr Cortes warned. “The potential downside from failing can be larger than the upside from succeeding, especially in the short run. If failing an auction is not an option for the seller, they should consider selling via private treaty or lowering their reserve price at the auction.”

“Auctions beget auctions. Sellers should think carefully about their tolerance for that risk, their time constraints, and the current market conditions. If a seller cannot afford to wait several months for the stigma of a failed auction to fade, they may prefer to sell via private treaty or reduce their reserve price in the auction.”

Last Updated on May 14, 2026 by Nick Ross