What is a reserve at an auction

This is an auction where the final bid for an item can be rejected by the seller if it is not high enough to satisfy them. They may set a particular fixed reserve, or they may alter the reserve over the course of the auction in response to the bids placed. Bidders are often unaware of the reserve price.

If you're selling a house or apartment via auction one of the key elements of a successful sale is setting a realistic, market driven reserve price. If you set the reserve too low you could miss out on thousands, but set it to high and you may price yourself out of the market. 

As the reserve price is set by the vendor knowing what factors you should take into consideration is valuable. Here is a deep dive into auction reserves, how to set the price and what factors you should review when working out the right reserve price for your property.

What is an auction reserve when selling a house or apartment?

An auction reserve is the minimum price a vendor is willing to sell their property for. 

Importantly the reserve price is confidential to everyone except the seller and the auctioneer. When the reserve price has been reached the auctioneer will announce that reserve has been met and the property is “on the market”, or in other words it will sell to the highest bidder. 

If the bidding doesn’t go over the reserve during the auction, then the agent will negotiate with the highest bidder/s to achieve a sale price both the vendor and buyer are happy with. 

As we mentioned above, the vendor is responsible for setting the reserve for their property. When working out a fair market reserve ensure you consider the following factors:

1.Your initial property value estimate or property appraisal

Your real estate agent would have appraised your property at the beginning of your campaign. They would have assessed its key selling features including; its size, the number of bedrooms and bathroom, the condition of the property, its fixtures and fittings and the quality of any renovations. They would have reviewed the property’s location and its potential buyer appeal. They would have reviewed comparative properties that have sold within the last 90 days, looked at the current competition and reviewed wider market trends to provide you with a price guide for your property.

The property price guide given to you after the appraisal is a good starting point when working out your reserve. However, keep in mind, an auction campaign normally runs for 4 weeks, during which time your local property market may have changed. So, a price that was relevant at the start of the campaign may no longer be as you get closer to auction day.

2.Buyer emotion

One of the key benefits of an auction is the fact that it can generate a lot of excitement. It’s this excitement that can lead to competitive bidding and great results. When 2 or more bidders want to buy the property, prices are driven up. When setting your reserve understanding what potential buyers are feeling about your property can help guide your decision making.  

Talk to your agent to understand buyer sentiment. Are there any passionate buyers who can afford the property, if so, how many buyers and what does the agent think they would be prepared to pay for your property.

In most cases buyers have their finger on the pulse when it comes to property prices. They most likely have been monitoring the market for a while. Getting some insight into what they may be prepared to spend on your property can be useful when setting a reserve. Keep in mind though, that buyers may also keep the figure they would be prepared to spend on your property to themselves.

3.Agent feedback 

A key source of on update to date market information is your agent. They are across what is happening with other properties in the area. What they are selling for, what interest they are generating and the general market sentiment. This insight is invaluable when working out how much to set your reserve at. 

4.Have you received any offers?

In some instances, buyers may make a pre-auction offer in an attempt to purchase your property before auction day. While you may have decided not to accept the offer/s, it does give you a starting point to work from with regards to your reserve.

A final word

When setting your reserve price it’s important not to get sentimental about your property and set an unrealistic price. By reviewing your property value estimate or price guide, talking to your agent to gauge buyer sentiment and reviewing current market conditions, can help guide you to set the right reserve price. To talk to your local McGrath Real Estate Agent click here. 

Other sell my house or apartment tools and information

Complete Guide to Selling a Property 

Preparing Your Home For Sale Checklist

Guide to Sell my House or Apartment

What are the Costs of Selling a House or Apartment 

Get a Price Guide for my Property

Selling a Property FAQ's 

Choosing a Real Estate Agent and Questions to Ask

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Some items in an auction have what’s called a reserve price, and some have no reserve – but what’s the difference between the two?

What is an Auction Reserve?

An auction reserve is the minimum price the seller is willing to accept for an item. In this type of auction, the seller is only obligated to sell the item if the bid amount meets or exceeds his or her reserve price.

This reserve price protects the owner of the item from having to part with it for less money than he or she wants to.

A Reserve Price in Action

Here’s an example of a reserve price:

A seller is selling a vehicle at auction. He sets a reserve price of $6,000. The auctioneer opens the bidding at $4,000 and bidders work their way up until the price is $5,900.

Nobody wants to bid more than $5,900 for the vehicle.

The auctioneer removes the vehicle from the auction because the reserve price has not been met.

Here’s an opposite example of a reserve price:

Someone who decided to sell everything and start over is selling an antique glass collection at auction. She sets a reserve price of $150. The auctioneer opens the bidding at $75 and bidders quickly work their way up to $200.

The bidding continues until nobody else wants to bid. At that point, the auctioneer confirms that the highest bidder will buy the item because it met – and exceeded – its reserve price.

Pro tip: If you’re a seller who wants to set an auction reserve price, make sure you talk to the auctioneer about it before you make a decision. You could alienate potential buyers who are looking for a bargain – and your item may not sell. The auction house you’re working with can give you specific guidance.

What is a No-Reserve Auction?

In a no-reserve auction, the item must sell if someone bids on it in a timely manner. For the most part, items put up for grabs in a no-reserve auction will sell – unless nobody at all bids on them.

Many people feel that one of the biggest benefits to a no-reserve auction is that it can draw in a larger number of bidders who are looking for a deal. In this type of auction, there can’t be a minimum bid; neither can the seller reject or decline any bid. Typically, more bidders equals higher sales prices.

Are You Thinking About Attending an Auction?

If you’ve never been to an auction before, here’s what to expect at your first auction. While you’re here, check out our five auction tips for beginners and find out about our upcoming auctions.

We’d love to answer your questions about holding an auction to sell your belongings, as well, so please feel free to call us at 904-806-4274. You can also check out Great Expectations Auction & Estate Services on Facebook to look at current offerings and discover upcoming sales.

Common to auctions, a reserve price or a reservation price is the minimum amount that a seller will accept as the winning bid. Alternatively, it is less commonly known as the highest price a buyer is willing to pay for a good or service. The reserve price prevents a bidder who offers a price lower than what the owner will accept from winning the auction.

The point at which the buyer and seller are no longer willing to negotiate is the walk-away point. The auction's starting price tends to start lower than the reserve price to encourage bidding. A reserve price is not to be confused with an opening bid, which is the suggested starting bid for an auction.

• A reserve price is a minimum price that a seller would be willing to accept from a buyer.
• In an auction, the seller is not typically required to disclose the reserve price to potential buyers.
• If the reserve price is not met, the seller is not required to sell the item, even to the highest bidder.
• As a result, some buyers dislike reserve prices as they encourage bidding at levels that may not win.

Reserve prices are intended to protect the owner of an auctioned item from an unfavorable outcome. On sites like eBay, the reserve price is hidden, and until the reserve is met, the system will show "Reserve Not Met."

When the reserve price is met, the system will display "Reserve Met." Once a bidder submits a bid that has met the reserve price, the bid is binding, obligating the buyer to purchase the auction item or service and obligating the seller to sell the item or service.

Sellers can disclose the reserve price in their descriptions or upon request from potential buyers. Some auction bidders are opposed to reserve prices because they reduce the possibility of winning the auction at a bargain price and because they create uncertainty as to the minimum price that must be paid to win the auction.

Some auction companies and sites (e.g., eBay) allow sellers to set reserve prices for an additional fee as it is considered an optional feature, and some allow for the reserve price to be changed while an auction is active. If changes are allowed, the seller can only reduce the reserve price. When a reserve price is disallowed, such as with an absolute auction, owners are typically prohibited from bidding on their items as doing so would allow them to manipulate the process.

All auctions are not the same. The parties to an auction should thus carefully review the rules and guidelines before entering into a selling agreement or submitting bids.

Sellers are not obligated to sell if the reserve price is not met.

Oftentimes, the reserve price and the opening price/bid are used interchangeably. However, they are not the same. While the reserve price is the minimum price a seller is willing to accept, the opening bid is the amount suggested to start bidding. Bidders are not obligated to accept the opening bid, and if an item receives no bids, the auctioneer will lower the starting/opening bid price.

If an opening bid is too high, it may cause bidders to become disinterested even if the item price is subsequently lowered. It's like listing a residential property for sale. If the price is too high, many potential buyers become disinterested, and regaining their interest is difficult even when the price is lowered. Therefore, professional auctioneers suggest starting with a lower starting bid to gain interest. Once bidders are interested and begin bidding, they are invested and will likely continue until a higher price is secured.

For example, an Ohio auction house has scheduled an auction to liquidate the equipment from a bankrupt manufacturing firm. One item on auction is a stamping press used to shape sheets of steel into automotive body panels. The auction firm sets a reserve price of $250,000 based on the recommendation of the bankruptcy trustee but opens the bidding at $100,000.

After several bidders bring the price to $175,000, a firm that once competed with the bankrupt parts maker bids $200,000 for the press. No one else offers a higher bid, and the auctioneer removes the press from the auction because the reserve price is unmet.