When selling your home, business or any other asset by auction, establishing a realistic and market-related reserve price is critical in order to ensure the auction proceeds with an acceptable momentum, and that your asset sells for as least as much as you were hoping for.

Setting the reserve too high can slow the momentum of the auction as the agent and auctioneer go backwards and forwards trying to get adjustments on the initial reserve. The best auctions, with no disruptive pauses in proceedings, are the ones that get the best prices.

If you set the reserve too low, you risk not obtaining the full value for your asset – remember that once the auction has started, you can lower, but not raise, the reserve price.

Coming up with a realistic auction reserve is like trying to walk on a tightrope – it’s a balancing act between setting an amount that’s high enough to give you a comfortable sum, but low enough to encourage enthusiastic bidding at the auction. If your reserve price isn’t met, you’re not obliged to sell, but the other side of that coin is that bidders are not obliged to buy.

Sentimental property owners often have unrealistic expectations of the price they hope to achieve, and this is why it’s so important to use the services of a professional valuer. Getting an objective and experienced third party assessment is your best chance of an optimal outcome.

So What Is An Auction Reserve?

The auction reserve, or reserve price, is the minimum price you’re willing to accept for your asset. You are only obligated to sell once the bids match or exceed this price. The amount you set is secret, or hidden, and is only known to yourself, the agent and the auctioneer.

Auctioneers will let only let the bidders themselves know when the reserve price has been reached at the moment it’s been reached, and not a second before. This often has the effect of galvanising into action those people who’ve been holding back. Some buyers are simply more willing to bid if the property is officially “marketable” and “worth something.”

How Is An Auction Reserve Calculated?

The first, and most crucial step in arriving at a realistic auction reserve is research. What have comparable properties in your neighbourhood sold for? Proper benchmarks have to be established or you run the risk of your asset failing to sell, which is not only emotionally draining, but could also have significant financial implications for you as the seller.

Other factors, such as how much you actually need or want from the sale and buyer sentiment at the time will also be taken into account. Once your valuer has determined a reserve figure, it’s a good idea to have a moveable benchmark to review on the day of the auction itself, based on the number of people attending. Flexible reserves give everyone a little wiggle room.

For objective, professional valuations you can rely on – for auctions or any other purpose – contact The Property Partnership East Rand on 0860 999 440 or Email: office@tpp.co.za – we’re standing by to help you.