The reserve price is the lowest amount a property can sell for at auction. It is set by the auctioneer and agreed upon by the seller before moving forward with the sale.
When selling a property at auction, the seller must accept a minimum price, also known as the reserve price. They are only obliged to sell the property once the bid amount meets or exceeds the reserve price.
The reserve price is kept confidential between the seller, their solicitor, and the auctioneer.
Buyers will be informed of the “guide price”, which is based on the reserve price – read more about the guide price below.
Table of Contents
What is a reserve?
The reserve is the lowest price an item can be sold for at auction. It is also known as the ‘minimum price’ or ‘starting price’. This is usually set at the lower end of the estimated range or lower.
The auctioneer will not sell the item for less than this price, as agreed with the seller.
How is the reserve price calculated?
It is very likely that a buyer will discover any subsidence issues, even if you don’t disclose the details.
There are several opportunities for the buyer to uncover that the property has or is suffering from subsidence during the transaction. These include coal mining and mining searches.
The buyer’s solicitor will conduct various property searches to uncover any potential issues with the property before the buyer commits to the purchase.
A coal mining report will indicate if the property is within 20 meters of any areas previously used for mining, which can increase the risk of subsidence.
These are some examples of where a buyer can find out about subsidence problem:The starting point for the reserve price is the property’s value, which the auctioneer and the seller must agree upon.
The auctioneer will often choose a lower reserve price to guarantee the sale, while the seller is likely to prefer a higher one to avoid selling too cheaply.
Generally, the auctioneer will accept a property for auction if they can agree to a reserve price of 80 to 90 percent of its market value, depending on the type of auction.
Moreover, the type of property being sold can also affect the sale – some properties are more likely to be sold successfully at auction than others.
The agreed reserve price can be adjusted in the lead up to the auction (with the seller’s consent) depending on the amount of interest the property attracts.
Considerations for the seller when agreeing a reserve price
It’s worth considering the reserve price the auctioneer has proposed. Think about what you hope to achieve from the sale, your timeline for selling, and the consequences of not selling.
- Your circumstances will likely be the biggest factor in how determined you are to sell. If you need to guarantee the sale, set a lower reserve price.
- Strike a balance between the assurance of selling and making sure you get a fair price. Properties often go for more than the reserve price. However, if you need to make more than the reserve price to pay off debt, don’t take a risk.
- If you’re selling a vacant property, factor in the costs of owning it – mortgage payments, council tax, and the possibility of damage – and decide if you’d be better off cutting your losses.
- Negotiate with the auctioneer. Ask if they can increase the reserve price by one or two per cent.
Reserve price hesitation
Selling at auction may not be suitable for everyone’s needs or circumstances. However, those who are interested in what auctions offer can be deterred by hearing the auctioneer’s proposed reserve price. When setting a reserve price, it is important to be both cautious and realistic.
When comparing the reserve price to valuations given by estate agents, or the prices of similar properties advertised, it should be kept in mind that the asking prices suggested by estate agents are usually set high to gain the seller’s instruction.
Usually, the final sale price through estate agents is much lower than the original advertised asking price.
When to Use the Reserve?
If you have something of value that you want to get the best price for at an auction, you may want to use a reserve. This applies to in-person and online auctions and can be used for any item, such as a painting by an unknown artist, a piece of jewellery, or an antique.
The reserve is a great way to prevent organised low bidding. Although there is a fee charged by the auction house for using the reserve, it is better than the item selling for less than you expected.
If the item you are submitting is well known and its worth is recognised, you may not need to use the reserve. This is often the case for auctions held at Sotheby’s and Christie’s for works by famous artists that are likely to sell for high prices.
However, a reserve should not be used for items of little value.
Tips for Using the Reserve
Using the Reserve can be made easier with a few tips. First, read through the tips:
- Do your research before putting an item up for auction. Research how much similar items have sold in the past.
- Set your reserve price accordingly, not too high or else you may end up having to take it home and have to pay the listing and reserve fees. On the other hand, don’t set it too low or you could miss out on the amount you were aiming for.
- If anything, it’s better to go for a slightly lower price and hope that the bidding increases it.
- Be conservative. Unless you’re dealing in expensive items, you won’t usually need to set a reserve.
- The more you know about the item, the more successful your reserve will be. Providing evidence for a painting or antique, as well as a detailed description, can encourage people to bid.
- You have the option to sell to the highest bidder if the reserve isn’t met. In some cases, like when the bid is close to the reserve, it could be beneficial to do so. Otherwise, having a reserve would be pointless.
If the Reserve Doesn’t Work
There are often when goods don’t hit their reserve price. If this happens to you, consider the reasons why. Was the reserve too high? How far did the bidding go? Or maybe the auction wasn’t suitable for what you were trying to sell.
Do not be disheartened. Try entering the item into another auction, perhaps something more specialised or with a lower reserve. If it still does not sell, you may need to reconsider your strategy – it may not be worth what you believe it to be.
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