Decided not to sell item

Technically yes, there is a legal contract. However it's difficult for the buyer to really enforce it. If they were stubborn they could go down the legal route and try making a Disputes Tribunal claim against you.

I don't know what the item is but I think most buyers would be understanding if you have a very good reason for keeping it.

Or is it you can sell to them then just buy another for yourself?

T&Cs 4.4 You must sell to the highest bidder if the reserve price is met, or to someone who has bought using ‘Buy Now’.

It's up to you what you want to do, but unless you have made an honest mistake in the listing, you are obligated to complete the trade and if you don't, the buyer does have some legal rights, but enforcement would require taking it to court. If it's a genuine change of mind, most people would understand. Trademe says in their T & C.

Trade Me site terms and conditions – Help - Trade Me

4.   Listing and Selling

4.4   Comply with our policies

Auctions: When you list an Item for Auction on Trade Me, you should do so with the intention of selling this Item through the Site.

5.     Buying

5.1   Bidding and buying

You should only place a bid if you intend to buy the Item at the price entered. Remember, placing the winning bid creates a legal contract between you and the Seller where you agree to complete the trade.

Also, when placing a bid or accepting an offer, there is a note in that box saying...If you win, you are legally obligated to complete your purchase.

As above, unlikey they will go ahead with legal proceedings, but you will have to accept bad feedback, and not leave negative feedback in kind.