Making sense of reserve prices on auction properties

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We have all seen advertisements where a selling agent boasts that they just “sold a property for $200,000 over reserve”.

What does the “reserve price” at an auction mean anyway?

Is it a sworn bank valuation, done by a registered valuer? No (although it could be)
Is it the market worth of the property as calculated by the selling agent? No (although it could be)
Is it set or influenced by buyer feed-back during the auction campaign? No (although it could be)

The reserve price is set by the vendor, as being the lowest price they would be happy to accept on auction day. So it is (or can be) an emotional number that the vendor thinks their property is worth, or what they “need to sell for” to move onto their next purchase….and experience tells me that it is often too high but sometimes too low. In my opinion, no value should ever be placed on a “reserve price” as it is arrived at by the (potentially) least qualified party in the entire transaction.

If you are wanting to buy at auction, think about engaging an independent Buyer’s Agent to calculate the market worth of the property before you set you bidding limit.

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