Residz Team 4 min read
Melbourne home sells for a whopping $1 million over reserve!” “Sydney home sells for $1.25 million more than the original price guide!” “Brisbane home goes for $925,000 above reserve!” “Adelaide house goes $670,000 over reserve!”
As property prices shot up by 25% over 2021, headlines like these drew gasps of astonishment among house buyers and sellers alike. Reserve prices were being passed faster than a high-speed train would fly past an Aussie politician's electorate office. But as we head towards 2023, home sellers are finding it harder to reach their reserve price at auction. So, if you’re selling your house, what’s the right way to approach setting your reserve?
What is a reserve price?
In essence, the reserve price is the lowest price you’re willing to accept on the day of the auction. As you hope to have bidders at your auction, the reserve price is the minimum amount you’ll accept as the winning bid.
If a bid is submitted that meets the reserve price (or goes beyond it), the bid is binding. The buyer is obligated to purchase the home and the seller is obligated to sell the home. If bidding does not reach the reserve price set, it may move to a negotiation between the would-be seller and potential buyers.
How is a reserve price used in an auction?
A home seller has to set a reserve price for the sale of the property. This is done prior to the auction, but the information about the reserve price is known only by the vendor, selling agent, and auctioneer. As bidding progresses, the auctioneer will announce to the bidders that the reserve has been met, usually by saying the home is ‘on the market’ or similar.
Good Deeds says the wording has changed in recent times.
“Despite the fact that you will rarely hear the words ‘on the market’, nearly every auctioneer will make it very clear when it really is about to be sold. He/she will say something like “make no mistake, we are selling”.
“Or perhaps you have seen the selling agent go inside the property and confer with the owners. Then they come out and whisper to the auctioneer, following which, he/she might say “my vendor’s instructions are clear, the property is about to be sold”.
Once the auction bids reach your reserve price, the auctioneer has your written auction reserve form and authority to sell the property under auction conditions to the highest bidder.
Setting the reserve price
Given the reserve price is the lowest price you’re willing to accept on the day, it’s very important the reserve price you set is one you can live with if the home does sell. The buyer will always determine what they are prepared to pay, and right now they may have more choice than they did in 2021 and early 2022.
Residz ambassador Robert Klaric says as a vendor you should ask yourself one simple question:
“If I accept this offer, does the price allow me to move on with life and do what I want to do?”
He says to make a calculated and well-informed decision on price, taking into account your specific and realistic financial and emotional needs and the potential positive and negative outcomes if you decide not to sell.
“Near enough to your goal price is sometimes good enough to allow you to make a move.”
However, he says to set the reserve price higher than the buyer market feedback, on the basis that you can always make the decision to adjust the reserve price during the auction itself in order to meet the market, if you really want to or need to sell on the day.
“A reserve price can go down but it can never go up.
“The auction may not be as competitive as you’d hoped, and it’s vital to remember the reserve price might be as good as it gets.”
What factors should I consider before setting the reserve price?
Robert Klaric says in his book ‘Secrets of the Property Expert’ that a reserve price is set in conjunction with your real estate agent, after you discuss details of potential buyers, the number of possible buyers, and any indications the agent may have gleaned about upper price limits.
Robert says that it is rare to have the auction stop right on the reserve price.
“Almost always the bidding stops either under or over the reserve. You must therefore plan and prepare yourself for both scenarios,” he explains.
Also read our blogs: Avoid ever needing to ask ‘How does a bridging loan work?’ and Sydney auctions a 50-50 chance of success - unless sellers take off prior.
Residz can help buyers and sellers reduce the stress:
Photo: Nksy87 of John Morrisby, conducting an auction of real estate in Melbourne, Victoria.