How to set a reserve price for auction

As part of our on-going series on how to sell your property by auction, this month we look at how to set a reserve price and what factors you should consider.

  • 2 October, 2019
  • RESIDENTIAL
  • reserveauction-appraisal

What is a reserve?

A reserve is the minimum figure you would be happy to sell the property for.  If the bidding reaches the reserve the property it will definitely sell to the highest bidder.  The good news is any bids achieved above the reserve is essentially bonus money in your pocket!
 
In some instances, if bidding doesn’t go over the reserve, then a sale is negotiated between the vendor and any interested buyers.

When setting your reserve make sure you consider the following:

1. Your initial appraisal

At the beginning of your campaign your salesperson would have appraised your property.
 
To get to this figure they would have conducted a comparative market analysis and looked at similar properties that are currently on the market or have been recently sold. They would have considered current competition, wider market trends and your properties structure and conditions to arrive at a value that they believe you could achieve if you sold your property at that point in time.

2. Buyers sentiment

Auctions often achieve high sales prices because 2 or more emotional buyers keep bidding against each other, motivated to buy the property.  Understanding buyer sentiment is important when setting your reserve.  Talk to your salesperson and see if there are any passionate buyers, what does the salesperson think buyers would be willing to spend, what is the general feeling at the open homes?

3. Advice from your salesperson

Your salesperson is at the coal face of your marketing campaign, they are hosting open homes, fielding calls, sending contracts, following up attendees after inspections.  They know how much interest there is in your property plus any positive or negative feedback.  They know what the market is thinking about your property and are an important resource to tap into when setting your reserve.

4. Any offers and market feedback

It is important not to get sentimental about your property and set an unrealistic reserve.  It is very important to talk to your salesperson, to review any pre-auction offers and listen to market feedback from your salesperson.
 
Over the course of the auction campaign, which is normally 3-4 weeks, the property market can fluctuate and it’s important to factor these changes in when setting your reserve.  You want to be “in the market” not “on the market”.  Consider carefully - are you prepared to sell for what the market is prepared to pay?

LJ Hooker NZ

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