Auction reserve price

We are all familiar with the concept of an auction reserve price.

It’s the price at which a vendor (owner) is prepared to sell their product.

Online e-commerce sites such as ebay have managed to bring this concept to most Australian households and familiarity isn’t just limited to adults. Children are growing up with an understanding of an online auction reserve price.

It’s clear, it’s published as soon as the campaign starts, and it’s generally predictable.

Things aren’t quite the same when it comes to property though.

In Victoria, a vendor isn’t required to declare their auction reserve price at the commencement of the campaign. In fact, they aren’t even required to determine it. The REIV Exclusive Auction Authority contract allows the reserve box to be left unmarked for the entirety of the campaign if the agent and vendor so choose, and invariably, most do.

Most agents will have a reasonable idea of the vendor’s desired sale price, and an experienced agent will be reluctant to take on an unrealistic or unreasonable vendor; particularly during a busy period. However, not every agent will have a clear directive from a vendor in relation to their minimum sale price that they’ll be prepared to accept. Some vendors don’t even know what they’d be prepared to accept, but most have at least a vague idea. The motivation to leave the Auction Reserve price blank is usually to allow the vendor some time to decide what price to set in accordance with the buyer feedback their agent is facilitating throughout th course of their campaign.

Some things can alter a vendor’s reserve price expectations and typically they involve these occurrences:

• a market shift during their campaign,
• a fresh and direct comparable sale that underpins a different appraised price for their property,
• a change in personal circumstances, (ie. an increase/decrease in their motivation to sell due to external reasons),
• feedback from their agent about buyer interest or disinterest in their property,
• a desire to purchase a property that is concurrently for sale,
• family or friends offering them advice

We always track the ‘reserve sentiment’ with the agent over the course of a campaign. They may not know the final reserve price in the initial weeks, but reserve prices do start to solidify in the final stages. Buyers are generally skeptical about our ability to glean information on reserve prices but some of the questions we can ask include;

• Do you know what the reserve price is?
• What would you suggest the reserve price should be at this stage?
• What comparable sales did you share with your vendor to determine a likely selling price?
• What comparable sale do you think best represents this property?
• What advice will you be giving to your vendor in terms of setting their reserve?

Buyers will be surprised how much information the agent will share if they ask nicely and respectfully. Plenty of agents genuinely prefer to have dialogue with their buyers; it gives them assurance that the buyers they are talking to have a realistic approach towards buying the property. It’s a difficult situation for an agent to face if the buyers all have insufficient budgets on auction day.

Sometimes an agent will be more secretive about disclosing a reserve price, and more often than not this reluctance to discuss will relate to their confidence about the property selling ‘under the hammer, (or in other words, the bids reaching reserve and the property selling to a bidder). If an agent is fearful that the bidder numbers, (or bidder’s budgets) are insufficient for the bidding to actually reach the reserve, they will be bracing themselves for either an auction pass-in outcome, or a conversion of an auction campaign to a private sale.

When this is the case, disclosure of a vendor’s reserve will be far less likely.

The agent will be strategising all of the ways that they can create competition and deliver a pleasing result to their vendor. In many cases, this involves marketing the property at a slightly higher price than the vendor’s ‘bottom line’ in an effort to achieve a sales price that their vendor is pleased about.

If a property passes in to us, we sometimes have to accept that the agent could be offering the property to us at a price inflated reserve figure. Not all, but some do. It creates a win/win that agents love; happy buyer who feels they’ve negotiated below the reserve, and a happy vendor whose agent has managed to achieve a little more than their bottom line without competing buyers aiding the sale price.

Understanding our values is integral.

Without comparable sales analysis and solid research, we wouldn’t know whether it’s a fair reserve or an inflated figure.

In heated property markets, (particularly after a sharp turnaround like we find ourselves in today), agents are often plagued with cries from buyers about underquoting.

Some do indeed underquote, but not all.

In a fast moving market, comparable sales can be reset on a weekly basis, and a vendor’s price expectation will no doubt increase as the sale prices around them do.

Discussions with the agent throughout the campaign are essential if a buyer is keen to know where they stand on auction day when it comes to the reserve.