The advertised price for an auction is always lower than what it will sell for.
There is very little hope that you can get the property for under $500k before the auction or at the auction. If it is a deceased estate that is selling the property you may have a chance. Read the Section 32...
No harm in putting a pre auction offer on the table before the auction. It will have to be a big offer though to get it pre auction but u could get it cheaper than at auction. See how u go. Nothing wrong ethically in my opinion as to what the agent is doing. He works for the vendor not for u...