The reality of reserve prices
5 Apr, 2018
By Justin Nickerson
Ideally, you will set your auction reserve in the week prior to the auction, although it may change on auction day.
Common knowledge of auction practice is that the reserve is set on the day of the auction.
However, I believe the ideal time is actually earlier in the week.
For agents, it gives them more time in the latter part of the week to work with the buyers who are going to matter on auction day.
That’s because the reality of an auction campaign is that not much really happens in the final 48 hours.
So during those last few days, it’s best practice to spend time with potential buyers rather than with the vendor because there is unlikely to be any more new information to give them anyway.
If the reserve is set early in the week, and it’s out of line with market sentiment, it gives the agent time to address that discrepancy.
If the reserve is set 10 minutes before the auction, that doesn’t leave you any time to question a figure that is way above what’s likely to be bid.
As humans, we get excited by the prospective of a great result, so if an achievable reserve is set early then agents will be even more motivated to generate additional interest in the property.
Not a last minute decision
Ideally vendors should be setting the reserve at least 72 hours before the auction, because the decision is too important to leave until the last minute if you ask me.
One of the realities of reserves is that vendors generally set it at a figure slightly higher than recommended.
That’s because they sometimes fear (unnecessarily) that agents won’t try to secure them the optimum price, which of course is not correct, as agents are legally required to achieve the best result.
If a vendor sets a reserve that is clearly unrealistic for the current market conditions, then it’s the agent’s job to communicate that and to inform the seller how a reserve also impacts the marketing strategy.
If they don’t budge on price, well, there’s not much an agent or auctioneer can do, apart from informing the vendor that our roles are to get them as much money as possible.
The vendor’s role is to say yes or no to the recommendations, which will ultimately impact the final result.
For sellers, setting a reserve is really “where the rubber hits the road”, when they hopefully consider all the information that the agent has given them and commit to selling their property.
If the agent has been consistent throughout the campaign and has given them plenty of information and market feedback, the seller really shouldn’t get a surprise on auction day or at the reserve-set meeting.
Changing the reserve
Like everything in the world of real estate, everything must be documented.
The official reserve document must be signed when the reserve price is set.
It’s important to understand that the reserve can be changed prior to the auction, but if it is, then that document must be updated and signed again.
Another reality of reserves is that often doesn’t happen, which could cause legal problems down the road.
When it comes to an auction campaign, the reality is the reserve is flexible so buyers fishing for intel about what it is are wasting their time.
While I advocate for the reserve to be set earlier in the week, that doesn’t mean it won’t change before or on auction day.
At the end of the day, the agent’s job is to inform the seller and the seller’s job is to hopefully listen.
All they can do is hope the reserve is set at the right price and realise that if it isn’t they can adjust it prior to the auction starting.