How the right reserve price can improve your auction result

Expert Advice with Brett Warren 01/05/2018

Selling your property at auction is altogether exciting and nerve-wracking at the same time – especially if it’s your investment property that’s up on the auction block.

While auctions can be notoriously unpredictable, there are several things you can do that may inspire a better end result.
One of these things is ensuring that you’ve set the right reserve price at the outset.

And this means being realistic about current market conditions, so you don’t overshoot the mark.
This is crucial, because setting the right reserve price can result is a more successful auction and a better all-round result for you as the property owner – let me explain...

When setting your auction reserve price, you’re aiming to find that perfect balance between maintaining a fair price to encourage bidding, while keeping activity high enough to reach your target sale price.

Let your expectations become too unrealistic, and you could be setting yourself up for failure.

It’s all well and good to want $800,000 for your property, but if it’s only worth $750,000 and the maximum anyone will pay is $760,000, then setting a reserve for $800,000 only achieves one thing: a failed property sale.

So my first tip is: be as flexible to the outcome as possible.
You may have an idea of what you would like to achieve at auction, but ultimately, achieving a successful sale is more important than the value of the sale itself.

In 20 years' time, will you regret that you didn’t hold out for a buyer who could pay a higher price?
Or will you be grateful that you sold when you did, as it allowed you to move on to other investments or that new home?

To choose an effective reserve price, there are several to take into account, such as:
•    Professional market feedback
•    The level of interest in similar properties
•    Whether you’ve received any pre-auction offers from interested parties
•    Comparable sales amongst similar local properties

It can also be beneficial to check out a few auctions in your local area in the lead up to your own auction, as this can give you a better understanding of the margin between the reserve price and the final selling price.

My second tip? Think about your own personal situation.
Are you eager to sell immediately?

The more pressure you have to achieve a quick sale, the less important the reserve price is – as the key factor is making the sale and achieving that quick turnaround.

If this is the case, choosing a slightly more modest reserve price could be the better option, to avoid your property being passed in.
That said, it’s good to remember that if your property is passed in, that doesn’t mean your auction was a failure.

A pass-in (when the highest bid doesn’t exceed the reserve at the auction) can occur due to several factors, though a reserve price that is set too high for the market is one of the most common reasons.

In the event that your property is passed in, don’t despair or get too disappointed.

Your agent can leverage the auction process by negotiating with the highest bidder – and, if that fails to land a sale, other interested bidding parties – to make a post-auction sale.

When should you set your auction reserve price?
There’s so much adrenaline and excitement on the actual auction day, which can influence and cloud your final decision, so it’s always a good idea to set your reserve price well before the big day.

While you have to tell the agent what you'd like to achieve at the beginning of the auction campaign, you've got the right to amend it (up or down) based on market feedback.

Be sure to use your agent as a resource: they have experience in the real estate industry and see similar properties selling day-in, day-out, so they’re in a perfect position to help you set a realistic reserve price, and achieve the auction result you’re hoping for.

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Brett Warren is the Senior Property Strategist at Metropole Properties in Brisbane and uses his 12 plus years property investment experience and economics education to advice clients how to build their portfolios.
He is a regular commentator for Michael Yardney's Property Update.



Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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