Empower Your Auctions with the Right Reserve Prices
Common to auctions, a reserve price or a reservation price is the minimum amount that a seller will accept as the winning bid. Alternatively, it can also be considered as the highest price a buyer is willing to pay for a good or service. A reserve price ensures a bidder who offers a price lower than what the owner will accept does not win the auction.
The point at which the buyer and seller are no longer willing to negotiate is the walk-away point. The auction’s starting price often begins lower than the reserve price to stimulate bidding. A reserve price is distinct from an opening bid, which is the suggested starting point for an auction.
Key Takeaways
- A reserve price is the minimum acceptable price a seller is willing to take from a buyer.
- In an auction, sellers typically do not disclose the reserve price to potential buyers.
- If the reserve price is not met, the seller is not obligated to sell the item, even to the highest bidder.
- Some buyers are dissatisfied with reserve prices as they encourage bidding levels that may still not secure the win.
The Significance of Reserve Prices in Protecting Sellers
Reserve prices are designed to safeguard the owner of an auctioned item from unfavorable results. On many auction sites, the reserve price remains hidden and is only shown as either “Reserve Not Met” or “Reserve Met.”
When the reserve price is met, the current bid is binding, obligating the buyer to purchase the item or service and the seller to sell it.
Sellers have the option to reveal the reserve price in their descriptions or if requested by potential buyers. Some bidders oppose reserve prices because they reduce the possibility of obtaining auction items at bargain prices and create uncertainty over the minimum amount needed to win.
Certain auction platforms charge an additional fee for the option to set a reserve price, allowing sellers to lower (but not increase) the price while an auction is in progress. When reserve prices are not allowed, such as in absolute auctions, owners are usually prevented from bidding on their items to maintain auction integrity.
Given that not all auctions operate under the same rules, both buyers and sellers should thoroughly review specific guidelines before participating.
Reserve Price vs. Opening Bid: Know the Difference
Reserve prices and opening bids are often confused but are fundamentally different. While the reserve price is the minimum a seller is willing to accept, the opening bid represents the proposed starting price for an auction. Bidders are not required to meet the opening bid; if an item gets no bids, the auctioneer can lower the starting price.
An overly high opening bid may deter potential bidders, just as an overpriced property listing can dissuade prospective buyers. To attract interest, professional auctioneers often recommend a lower starting bid. Once interested bidders begin bidding, they are likely to remain engaged, pushing prices higher.
Example of a Reserve Price in Action
Imagine an Ohio auction house liquidating equipment from a bankrupt manufacturing firm. Among the items is a stamping press for shaping steel sheets into automotive panels. Based on the bankruptcy trustee’s advice, the auction house sets a reserve price of $250,000 but starts bids at $100,000.
As bidding progresses to $175,000, a former competitor of the bankrupt company bids $200,000. With no higher bids, the auctioneer withdraws the press from the auction, failing to meet the reserve price.
This scenario illustrates how reserve prices ensure items do not sell for less than their set value, protecting the seller’s interests without impeding the overall auction process.
Related Terms: opening bid, auctioneer, bidder, auction guidelines, walk-away point, absolute auction
