A Mortgagee Sale Is Not a Discount: What the Law Actually Requires

There is a widely held belief that a mortgagee sale is, by its nature, a sale at a discount — that because the lender wants out, a lower price is both expected and permitted.

The law says close to the opposite. The figure a lender is measured against is ordinary market value: the price a willing but not anxious seller would get by voluntary bargaining. The lender’s urgency does not lower that benchmark. It only affects whether the lender took reasonable care to reach it.

For a borrower whose property has been sold, and for anyone advising them, that distinction is the whole case.

The duty, and its two branches

The obligation is statutory in several places, and it is consistently drafted in two limbs.

In New South Wales, s 111A of the Conveyancing Act 1919 requires a mortgagee exercising power of sale to take reasonable care to ensure that the land is sold for:

(a) if the land has an ascertainable market value — not less than its market value, or (b) in any other case — the best price that may reasonably be obtained in the circumstances.

Where a receiver is selling, s 420A(1) of the Corporations Act 2001 imposes the same structure nationally: all reasonable care to sell for “not less than that market value” where the property has a market value, or otherwise “the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold”.

Queensland states it more bluntly still. Section 116 of the Property Law Act 2023 requires reasonable care to ensure the property is sold “at the market value”. Elsewhere, the general law duty applies in substantially similar terms.

The two branches matter more than they look. Branch (a) is the default for anything with a market — which is most residential and most standard commercial property. Branch (b), the “best price reasonably obtainable” test, is the exception for assets that genuinely have no ascertainable market value, not a softer standard a lender can elect into because it is in a hurry.

What “market value” means here

This is the point that decides most disputes, and Australian authority is clear on it.

In Boz One v McLellan [2015] VSCA 68 the Court of Appeal held that market value in s 420A(1)(a) carries its ordinary Spencer meaning — the price agreed between a willing but not anxious buyer and seller, reached “not by means of a forced sale, but by voluntary bargaining”.

So there is no forced-sale discount built into the benchmark. The circumstances of the sale are not irrelevant, but they operate in two confined places: on whether the lender’s conduct amounted to reasonable care, and on whether branch (b) applies at all. They do not reduce the figure in branch (a).

The valuation standards reach the same conclusion from the other direction. RICS guidance is explicit that a forced sale is a description of the circumstances of a sale, not a basis of value — so a valuer asked for a “forced sale value” is being asked for something that does not exist as a defined basis. What can properly be provided is Market Value with an explicit special assumption about a constrained marketing period, stated in the report.

That distinction is not pedantry. A report headed “forced sale value”, with no stated assumption about the marketing period, is difficult to defend precisely because it does not say what it has assumed.

What a lender is not required to do

The duty is real, but it is narrower than many borrowers expect, and three limits recur.

It does not require waiting for a better market. In Manda Capital v PEC Portfolio [2022] VSC 381 the Court confirmed that s 420A does not derogate from the right to sell at a time of the seller’s choosing, and that there is no obligation to wait until a point when a better price might be obtained. A falling or thin market is not, by itself, a breach.

It does not generally require improving the property. A lender is not obliged to renovate, complete a half-finished building or spend money to present the asset better. Queensland is the exception worth knowing, and it is a real one: for prescribed mortgages, s 116(3) of the Property Law Act 2023 imposes positive obligations — to advertise, to obtain reliable evidence of value, to maintain and repair the property, and to sell by auction. Within that class, the general proposition that a mortgagee owes no duty to improve does not hold.

It is a duty of care, not a guarantee of outcome. The question is never simply whether the price was low. It is whether reasonable care was taken to achieve market value — which turns on the marketing campaign, the method of sale, the time allowed, the agent’s instructions and whether the lender obtained and acted on a valuation at all.

What a valuer is actually engaged to produce

In a dispute over a mortgagee sale, the valuation evidence usually has two parts, and they answer different questions.

The first is a retrospective market value at the date of sale — what the property was worth, on the ordinary basis, at the moment it was sold. This is the number the duty is measured against. It is a retrospective exercise, with the evidentiary discipline that implies: comparable sales from the period, market conditions as they then were, and no use of hindsight about what the market did afterwards.

The second is an opinion on the sale process itself: whether the campaign, the method and the exposure period were capable of achieving market value. A sale can produce a low number for honest reasons, and a well-run campaign in a weak market is not a breach. A three-day campaign with no advertising and a single bidder is a different conversation, and it is one a valuer is often better placed to describe than a lawyer.

For a borrower, the practical sequence is unglamorous: get the retrospective valuation first, and only then decide whether there is anything worth arguing about. Many sales that feel unfair produce a number within a defensible range, and finding that out early is cheaper than finding it out later.

Frequently asked questions

Can a bank sell my property for less than it is worth?

It must take reasonable care to sell for not less than market value where the property has an ascertainable market value — s 111A of the Conveyancing Act 1919 in New South Wales, s 420A of the Corporations Act 2001 for receivers, s 116 of the Property Law Act 2023 in Queensland. A price below market value is not automatically a breach, but it is the point at which the lender’s conduct becomes the question.

Does a mortgagee sale justify a lower price because it is forced?

Not as a matter of the benchmark. Boz One v McLellan confirmed that market value in this context has its ordinary Spencer meaning — a willing but not anxious seller, reached by voluntary bargaining rather than a forced sale. The valuation standards agree: a forced sale is a description of circumstances, not a basis of value.

Does the lender have to wait for a better market?

No. Manda Capital v PEC Portfolio confirmed that the lender may sell at a time of its choosing and need not wait for a point when a better price might be achieved. A weak market at the time of sale is not itself a breach of the duty.

What valuation do I need if I think the sale was too low?

A retrospective market value as at the date of sale, prepared on the ordinary basis with period-appropriate comparable evidence, and usually an opinion on whether the marketing campaign was capable of achieving market value. Those two together are what the duty is actually tested against.

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Sources:

• Conveyancing Act 1919 (NSW), s 111A
• Corporations Act 2001 (Cth), s 420A
• Property Law Act 2023 (Qld), s 116
• Boz One Pty Ltd v McLellan [2015] VSCA 68
• Manda Capital Holdings Pty Ltd v PEC Portfolio Springvale Pty Ltd [2022] VSC 381
• RICS Valuation – Global Standards, UK National Supplement (UK VPGA 11)

General information about the duty owed on a sale under a mortgage or by a receiver, as it bears on valuation. Not legal advice — whether a particular sale breached the duty turns on the evidence about that campaign, that market and that property. Confirm your position with your solicitor. Last verified 7 October 2026.

See also: Current Market Value · Retrospective Valuations · Expert Witness Valuations · Pre-Sale Valuations · Replacement Cost vs Market Value