What you need to know about auction reserves

Buyer’s Agent Tips: What You Need to Know About Auction Reserves

Expert tips from Buyer’s agent Amanda Bidder – Sydney and Northern Beaches.

For the uninitiated, going to an auction—let alone bidding at one—can be an intimidating experience for first-timers. Even in pre-coronavirus times, Sydney’s property market was famed for both its prices and volatility, but for beginners nowadays it can seem even worse; in May, Sydney and Northern Beaches homeowners were being urged to ‘sell now or regret it later’, while only two months later a Stanmore terrace failed to sell at auction even for $200,000 less than it should have. And, indeed, with such a huge amount of conflicting info available out there from websites or agents, buyers may find it hard to sift through for even the most important things like what a reserve price is and what effects it can have on the result of an auction. So, to the basics from a buyer’s agent in the biz:

 

 What is a reserve price?

Simply put, the reserve price is the minimum price the seller is willing to sell their property for. When a reserve is set, the seller is only obligated to sell if a bid exceeds it. The reserve often dictates, then, the amount at which the bidding starts; bidding often begins below the reserve both to get the ball rolling and to encourage bidder competitiveness.

Important to note is that the reserve price is confidential to everyone except the seller and auctioneer—the auctioneer will inform bidders when the reserve has been reached during an auction, but not a moment before. In other words, the reserve not only determines how much a property will sell for, but also whether it will sell (at auction) at all.

What happens when the reserve is not met?

If, at an auction, a reserve price is not met by any of the bidders present, the auctioneer may ‘pass in’ the property, meaning that it simply hasn’t sold. If this happens, the highest bidder is usually invited to negotiate with the seller to see if a sale can still be made. Failing this, discussions might still be held between the real estate agent and buyer’s agent, or interested bidders. If that fails, the property may instead be sold privately, taken off the market, or even put up for another auction at a later date.

 

What happens when the reserve is met?

Once the reserve price is met at the auction, the property is officially ‘on the market’—it becomes up to the bidders how much higher they will push the price past the reserve. This can depend on any number of things—the reserve amount, the number of potential buyers and agents, and how competitive the crowd is, to name a few examples—but eventually, the highest bidder will emerge and, once the gavel falls, pay the amount of their final bid.

 

Things to know before bidding at auction

Reserve or not, there are always a few things you should always keep in mind before you go to your first auction:

  • Use your wits. Be smart, taking the time to think things over (within reason) and to use tact and a cool head to get the best deal that you can. You don’t want to, for example, tell anyone how much you are willing to or capable of spending, especially the seller/auctioneer—doing so may result in the reserve being set at that price.
  • This comes with experience, but simply think about ways you might best go about winning the bid. You might want to think about ‘ignoring’ the auctioneer—auctioneers will often suggest a ‘knockout’ (winning bid) in an effort to encourage other bidders to beat it, or may raise bids in increments which you are free to go higher or lower than as you see fit. Consider also not just where you’ll stop your bid, but when you’ll enter the fray too—while ‘standing back’ and placing a carefully-considered bid at the end is often wise, actually opening the bidding can sometimes be the better option.
  • Know the rules. Simply put, know what to do and what not do. Know, for example, that while all bidders must register when they arrive at an auction, it doesn’t obligate them to. Don’t arrive late—though you can sometimes put a hand up and quickly register, this doesn’t always fly well, especially if things are heating up. Apart from that, things like noting when the reserve price is reached, knowing what to do if it passes in, making sure you’re ready to commit to your bid (successful bidders are usually expected to come up with a 10% deposit), and so on are all vital.

Most important for an inexperienced buyer or beginner is to be prepared! Whether the auction’s in the Lower or Upper North Shores, Inner West, CBD, or the Northern Beaches, you should do your research, go to other auctions as practice, or talk to an Amanda On My Side buyer’s agent about guiding you through the auction process.