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I think the issue here is that there was simply a statement in the email to the effect of "I offer $xx for the property at Y'...

I'm pretty sure you're right - though will leave that to someone more qualified to answer... Maybe the vendor and/or REA is being a tad greedy or have high expectations however have failed ot realise that the market is "cooling"? Make sure you attend the auction, you may even pick it up...