Is it better to announce when the reserve price is reached?

We consulted one of our website sponsors, Sydney real estate agent Derek Farmer, to seek his advice on what to do if your property doesn’t reach your reserve at auction. With his decade of experience it is an issue he has a good deal of experience with. If you decide to sell your home at auction, which is just one way to sell your home, although certainly one of the more popular ways to sell property on Sydney’s Lower North Shore, you’ll need to consult with your sales agent about setting the best reserve price for auction day. Indeed Derek points out that there are a few options available to you that many people aren’t aware of.

“For a start, setting your reserve should be something you consider a few days prior to auction day, and which you will want to adjust, only marginally, on the day, depending on the turnout,” he says. “It’s extremely unwise to get to auction day without having had a conversation with your sales agent about what a fair reserve price would be.”

To demonstrate, say you set your reserve at $550,000. If the bidding exceeds that figure, then you’ve pretty much scored a home run. If the bidding stalls at $520,000, though, then you’ve got a couple of decisions to make. The first is whether you should lower your reserve price, for which there’s often a strategic reason why a vendor would go down this road.

Lowering the reserve can spur bidding on

In Derek’s experience, auctions tend to get a second wind once the auctioneer has announced that the property has reached its reserve: “Usually this occurs because the underbidder — that is, the person with the second-highest bid — will think, ‘Let’s not lose this over another $10,000,’ and so they’ll put in another bid, and away she goes.”

Of course, the downside is that, even once the reserve is lowered, the bidding could still finish there, and now the vendor has to sell at that price. Derek points out that it’s here that setting the correct price for the property is vital. “If the auction has been conducted well and the property priced correctly, then the difference between the highest bid and the reserve shouldn’t vary much, so it’s worth dropping the reserve to keep the momentum of the auction going and quell any potential doubt that may creep into a bidder’s mind if the property is passed in,” he says.

It ain’t over till it’s over

Derek points out that sometimes passing in a property is the most viable option. “There are occasions, and I’ve seen this occur, even despite there being a number of contracts out on a property and great feedback from buyers, when the bidding stalls well enough away from the reserve price that it’s smarter for the property to be passed in.”

Although this isn’t favourable, and it’s generally perceived by vendors that it will signal to buyers that the property was overpriced and cause them to cool their heels, it doesn’t always spell disaster. “Most of the time, when a property that has been priced correctly is passed in, the agent has still be able to negotiate a great price for their vendor that the bidder has agreed to straight after the auction”, Derek points out.

“In my experience, the main reason a property is passed in is because it’s just shy of the reserve, and the agent can sense that, after a little negotiating with the highest bidder, they’ll be able to secure a sale that reaches the vendor’s reserve price or is very, very near to it.”

Insider’s tip

So what’s a key bit of inside info Derek can pass on to vendors contemplating selling their property by auction? “People need to make sure they appoint an agent who thoroughly understands the property market, their local area, and with whom they feel comfortable will represent their needs the best,” Derek states. “Auctions are fast paced, and it’s critical that vendors understand all the potential outcomes on auction day before going into it, so they can make the most informed decisions on the day.”

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