As a vendor, auctioning your property involves more than just showing up on the day and hoping for the best.
Agreeing a reserve price is one of the most important decisions you need to make prior to the auction starting.
We asked experienced auctioneers for advice on how close to the magic figure do you need to set the reserve? How high or low should you go?
Ray White auctioneer Ted Ingram says there are no risks involved in setting the reserved price as it is an incognito figure.
Start your property search
The reserved price should be based on the accurate appraisal, feedback from the sellers’ marketing campaign and open homes.
But he says, the reserve should be set at an accurate figure. If it’s set on too low, the highest bidder takes the property without negotiation.
You could undersell your property with the reserve set too low, Ingram says.
“You must say yes and sell it to the highest bidder.” He says that if a higher reserve isn’t met, the auctioneer can go away and seek instructions from the vendor, before putting the sale back on the market.
“I wouldn’t give them [the low bidder] an opportunity negotiate one on one.”
The power of the reserve figure is that it’s confidential, so a high reserve cannot put bidders off because they don’t know that figure is, Ingram says.
But the vendor has to set realistic goals and be prepared to negotiate.
“If the appraisal price was $700,000 and after the open homes the feedback was $720,000 and the vendor says they want $900,000 a good agent would say that based on the gathered information that’s just not possible.”
Almost always the vendor will take highest bidder’s offer after the negotiations, despite it not reaching the reserve, Ingram says.
“The vendors often don’t know what they’ll take until they have something to say no to. As long as we have competitive bidding, we find the value during the auction,” he says.
Sometimes, not setting a reserve price can get you a better sale but it is a risky move in the current market, Ingram says.
“Buyers come along knowing the property will be sold and it’s a good tactic sometimes. It depends on vendor’s circumstances, it’s not a norm.”
Harcourts auctioneer Aaron Davis says the reserve price is an opportunity, but it is not fixed and has to be fluid.
“You always want to make sure that your reserve is not set in stone,” he says.
Communication with your agent an auctioneer prior to the auction is the key.
There is a misconception that the reserve price is supposed to be set hours before the auction, but it just puts the buyer under pressure. Mostly, it is set about three days in advance, Davis says.
“One of the biggest mistakes that people make is not meeting their auctioneers and talking about the reserve strategies days prior.
“There are so many combinations of what can happen, and clients need to understand all the scenarios to understand their risk profile is going to be,” he says.
