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How is an auction’s reserve price set?

By Andrew Bell

At The Event 2017, our upcoming auction extravaganza, we'll be taking advantage of the tens of thousands of summer visitors to the Gold Coast. We are maximising exposure to some of the best Gold Coast real estate around, which means anyone looking to sell their Surfers Paradise property could find themselves with a great profits by the end of the day.

Of course, auctions can be fickle. People's confidence, the general market, and even the mood of the room can all affect how your sale goes. One big factor is the reserve price – let's look at how this is set so you can better understand the auction process.

Who sets the reserve price?

In most cases, you can decide on the reserve price yourself. This is the minimum price point at which your Surfers Paradise property would sell. If bids don't reach it, the auction "passes in" and you may then negotiate with the highest bidder to secure a sale.

However, if the reserve is exceeded, the auction is "live" and the property will definitely sell – barring the buyer pulling out, in which case you can claim some fees back from the deposit.

While you can set the reserve, it's crucial to find the right point. Too high, and you may scare potential buyers away from the auction. Too low, and you could find your property selling for well below market value. You can even opt not to set a reserve at all, but this greatly increases the risk of making a loss on your sale. So how can you make sure you set a reserve price accurately?

Use a Surfers Paradise real estate agent

Your Gold Coast selling agent is the person who will ask you about setting a reserve, and they can also provide advice on where it should sit. As the Queensland Government points out, agent advice absolutely must come with a comparative market analysis (CMA). This is in-depth research on the property market, backing up any suggestions they make on what the reserve price should be. With your agreement in writing, this will also be given to the people bidding on your property.

To effectively back up a decision on a reserve, the CMA should include at least:

  • Information on three properties that are in similar condition to yours, and
  • That have been sold within five kilometres of your home within the last six months.

If this information is not readily available, the selling agent can provide a statement of justification on how they determined a reserve price. It must be given to you in writing.

How the reserve works on the day

Despite all of the work put into setting an accurate and fair reserve price, this figure is not actually revealed to bidders on the day. At least, until it is met. Auctioneers will reveal most details of the contract of sale, but the reserve price is not given.

You can make bids, known as vendor bids, if you feel the auction is not moving along towards the reserve quickly enough. However, these must be announced as vendor bids when they are made – otherwise it can be unfair for other bidders.

Be careful with how you use vendor bids – they can give away how keen you are to see the Surfers Paradise property sold.

All told, the reserve price is one of the most important parts of selling your property by auction. If you're taking part in The Event as a vendor and have any questions, make sure to get in touch with the team at Ray White Surfers Paradise.

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