Reserve Price Disputes in Bank Auctions: How to Avoid Them

Of all the elements of a SARFAESI e-auction, the reserve price attracts the most disputes. Set it too low, and a borrower will argue the asset was undersold. Set it without proper basis, and even a fair sale becomes vulnerable to challenge. Getting the process right matters more than getting a particular number right.

Use a Current, Qualified Valuation

The reserve price should rest on a valuation from an approved valuer conducted reasonably close to the auction date. A valuation that is months or years old, or that does not reflect current market conditions for the specific asset, is the first thing a challenge will target.

Consider More Than One Valuation for High-Value Assets

For significant properties, obtaining more than one independent valuation, and reconciling any material difference between them, strengthens the reserve price against later dispute and reduces the risk of a successful undervaluation claim.

Document the Basis for the Figure Chosen

Where the reserve price differs from a valuation figure for any reason, market conditions, condition of the property, prior failed auctions, that reasoning should be recorded at the time, not reconstructed after a dispute arises.

Learn From a Failed First Auction

If an initial auction fails to attract bids at the set reserve price, revising the price for a subsequent attempt should be done through a fresh, documented valuation exercise, not an arbitrary reduction, to avoid the appearance of an artificially depressed sale.

The Broader Point

Reserve price disputes are rarely about the number in isolation; they are about whether the process that produced the number can be defended. A transparent, well-documented valuation process is what actually prevents these disputes from succeeding.