How to Set a Realistic Reserve Price for a Property Auction

Setting the right reserve price for a property auction is a delicate balance. It needs to attract serious buyers while protecting your financial interests. Here’s a step-by-step guide to help you set a realistic reserve price and maximize your chances of a successful sale.

  1. Gather Feedback from Inspections

Talk to the Agent: Use open home inspections to gather insights from the agent. Their feedback can help you gauge buyer interest and pricing expectations.

Gauge Demand: Ask agents about how many people showed interest and whether they believe they will be attending the auction.

  1. Research Comparable Sales

Analyse Recent Sales: Look at similar properties that have recently sold in your area. Pay attention to:
Size, Location, Condition, Features like parking, views, or nearby amenities

Do a Drive-By: Visit these properties in person or simply drive by to assess how they compare to this property. This hands-on approach helps you judge whether the property is priced fairly.

  1. Understand the Current Market

Seller’s vs. Buyer’s Market: Identify whether it’s a seller’s market (high demand, low supply) or a buyer’s market (low demand, high supply). Market conditions will influence how competitive your reserve price needs to be.

  1. Evaluate The Agent’s Track Record

Review Pricing Accuracy: Check if the agent’s price guides typically align with final sale prices. An agent who consistently sets realistic guides can help you better estimate your property’s value.

Auction Strategy: Does the agent tend to sell properties before auction, or are they experienced with taking properties all the way to auction day? This could influence how you set your reserve.

  1. Consider Your Personal Situation

How Much Do You Want This Property?

Ask yourself how much longer you’re willing to keep searching if this property doesn’t sell.
Compare the property to your ideal home. List its features and check how many boxes it ticks for you.

Confirm Your Finances: Speak with your mortgage broker to ensure your finances are ready and you know your exact budget.

  1. Prepare for Auction Day

Visualize the Worst-Case Scenario: Imagine the auction day. What if the gavel drops and the property sells for the lower end of your price range, but not to you? If that makes you feel regretful or anxious, it might be worth increasing your limit incrementally.

Adjust your reserve in $25,000 increments until you feel satisfied with walking away.

Set a Firm Limit: Write down your absolute upper bidding limit in both numbers and words. Stick to it to avoid emotional decisions during the heat of the auction.

  1. Pro Tips for Auction Success

Avoid Emotional Bidding: On auction day, emotions can run high. Don’t let the excitement push you to bid beyond what you can afford.

Have Backup Limits: Prepare two alternate reserve limits, both $25,000 below your maximum. These can help if the auction stalls and the property doesn’t sell, giving you room to negotiate if it passes in.

Consider Using A Buyer’s Agent: Using a buyer’s agent’s experience in the market will allow you to have an emotional detachment and give you the best chance of success.

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