The ins and outs of setting a reserve price

BY VIEW.COM.AU

Setting a reserve price correctly involves finding the perfect line between ensuring the reserve is high enough to guarantee you a comfortable amount if reached and low enough that it will not be prohibitive to encouraging bidding on the day.

There is a common fear of setting the reserve price too low, if you take the time to make your decision this shouldn’t be the case.

Remember, the reserve price isn’t advertised anywhere and is confidential.

When to set your reserve

Make a decision about the reserve price anywhere up to a few weeks prior to auction day.

Avoid changing your mind without evidence to back your decision up. You are looking to try and make the decision as logically and unemotionally as possible prior to the day of auction.

How setting a reserve price can affect the outcome of the auction

Setting a reserve price is partly about your personal comfort level but also partly about how a high, low or predictable reserve price may affect the bidding activity on the day at auction. While every auction is unique, there are usually some common ideas that you should be aware of.

Auctioneers will let the bidders know when the reserve price has been reached, but not a moment before. This announcement may see some interested parties, who were previously holding back, jump in and bid.

Some buyers may be more willing to bid if the property is officially “on the market” – or when another bidder has finally met the reserve price. For this reason, setting a reserve price too high can actually be prohibitive and stop other potentially interested buyers from purchasing. Unsurprisingly, this often applies to investors and there are a number of people who will not raise their hand to bid unless they know it’s truly going to be sold under the hammer.

This thought process is about making sure you can continue the momentum and energy in the auction, something that your auctioneer can explain to you.

 

Selling without a reserve price

Selling without setting a reserve price is risky, yet there are occasions when it can pay off.

While it’s not the recommended method, as little buyer interest could leave you with absolute peanuts, sometimes the suggestion of no reserve can hype up interest on the day enough to make the risk worthwhile. Due to the risks, this type of auction is highly uncommon and usually makes headlines when advertised.

How to make your final reserve price decision

When selling, you have access to plenty of expert information. Your real estate agent is an asset as can be the auctioneer. Both will have seen plenty of auctions in the local area and can let you know the chances of your home passing in or bidding going wild. They will be able to describe the auction process and what they know about the confidence of local buyers in the current market. Do not estimate the importance of a chat with your agent.

Also look to online tools, such as our Price Estimate Tool, to get an idea of the value of your home.

Your agent will know the specifics about your home. During the final few days before auction, you should be researching and using guidance from your real estate agent to determine what your final figure will be and whether you need to adjust it higher or lower.

Feedback through the course of the campaign can be crucial and your agent will help you interpret how much interest there really has been in your home and what this means. It’s very likely they’ll have some understanding of how many people will turn up on the day.

Listen to your agent’s perspective and utilise the information they have been collecting about your property’s marketing campaign.

Points to remember

• Choosing the reserve price is a balancing act
  • You can set it anywhere up to the day of the auction
• Speak to your agent and auctioneer about the reserve price
  • In Victoria, an agent is obligated to provide bidders with a Statement of Information, which indicates the potential selling price.
• Interest through the marketing campaign will assist you in setting your limit
• A passed in auction isn’t always a failure
• Attend local auctions for some more insight
• Consider your personal circumstances.