Disclosing the Reserve Price

During an auction campaign we are commonly asked by people interested in the property, “Why can’t you tell me what the reserve price is?” There are two main reasons why we do not disclose the reserve, one has to do with how auctions are regulated in Queensland, the second reason relates to the auction process itself.

But first, let’s define what the reserve price actually is. The reserve price is determined by the vendor and guides the auctioneer. It is a ‘floor price’ or the minimum amount the vendor is prepared to accept for their property at auction. It protects the vendor, in that it is illegal for an auctioneer to sell a property under the hammer at an amount less than the reserve.

Getting back to the regulations. Auctions, like all aspects of the property industry in Queensland are governed by the Department of Justice through the Office of Fair Trading. They have clear and strict rules surrounding auctions, and one of them is that the agent and auctioneer must not disclose the reserve price. So, we can’t tell prospective buyers the reserve because it is illegal to do so.

Secondly, the auction process itself. Selling a property at auction is pure economics. It is supply meeting demand with the price on the day is determined by market forces. It is those market forces that are used during the campaign to inform the vendor so they can set the reserve.

In simple terms this means that during the course of advertising the property, the agent will pass on lots of feedback to the seller. Things such as how many people have inquired about the property; the number of inspections; what did people like and dislike about the property. Most importantly, a good agent will ask key questions to those who have inspected: “How much do you think the property is worth?”

Why do we do this? Well, a vendor may have a price they think their property is worth, or a price they ‘need’ in order to buy something else. But remember, auctions are driven by market forces, and those forces may have a very different idea on the value of the property.

This feedback is presented to the vendor over the course of the campaign, culminating in a meeting with the vendor just prior to the auction where the reserve price is set. At C1 Realty, this meeting usually happens on the morning of the auction or perhaps the day before. All of the feedback is discussed, and the vendor makes the decision on the reserve price.

The existence of a reserve price does not prevent the property selling above that amount. We’ve all heard stories, especially lately, about properties selling at auction for sometimes significant amounts above the reserve. It is rare, but the reverse can happen at auction when bidding is slow and in order to achieve an unconditional sale, the vendor instructs the auctioneer to lower the reserve.

In both either scenario, what we are seeing is market forces at play.