Thursday, July 24, 2008

How to protect sellers with a "Reserve" price

One of the most important terms is to determine whether the auction will be "absolute" or "with reserve." Absolute means that the property sells to the highest bidder regardless of price. Obviously, this method is extremely risky, and is best left to the professional auctioneers.

We recommend that all online real estate auctions be held "with reserve," meaning that the property does not sell unless the reserve price is met or exceeded. Wait a minute - does that mean we are back to guessing at a price in advance? Not necessarily, although both you and your client will likely have at least some idea of a reasonable price range that the property should bring.

You can, if you choose, set a reserve price when entering your auction listing into the Auction System. If you do, the display that bidders see will show "Reserve not met" until the reserve price is met or exceeded. At that point, the display changes to "Reserve met" and bidders know from that point forward that the high bidder is going to buy the property. Your listing agreement with the Seller should indicate that the Seller is obligated to sell if the reserve is met or exceeded.

However, it is not necessary to establish a reserve price. Your terms can say "subject to confirmation by Seller." This is simply another form of auction with reserve, but avoids having to guess a reserve price in advance. After the online auction closes, both you and the Seller examine the "bid history" and the high bid to decide whether "fair market value" has been achieved.

This method of protecting Sellers is the most common form of real estate auctions across the country today. It is used by most professional real estate auctioneers and is accepted by bidders as a necessary protection for Sellers. You will discover that very often Sellers will agree to a sale price that is less than the lowest price they may have previously insisted on.


Anonymous said...

Showing "reserve price not met" is an honest method of auctions however it is a buzz killer if you are attending an auction just to find out that the properties are really overpriced and most of them are not selling. If you are bidding on lot number 122 and you think 121 have sold prior then you may think that you have to bid higher because everything is selling. However, if you are bidding on lot number 122 and you see that 121 did not meet the reserve, then you probably will either leave early or not bother raising the bid.

To combat the buzz kill and keep the false sense of urgency in the auction alive, the "Subject to Seller Confirmation" is being utilized to trick the public into thinking properties are actually selling when in fact the auction only results in an offer to the seller that can be accepted or rejected by the seller but if the winning bidder/buyer attempts to cancel then the auction company tries to keep their money.

If you want to base a business model on deciet, then so be it but there may be consequences.

Anonymous said...

We bid on a property listed on
The "reserve not met" changed to "reserve met" - even though we did not increase the bid. Our contract still says "subject to". Our real estate agent said we got it because we met the reserve, but according to the contract it's fully up to the seller's discretion. Now I'm waiting to hear from the seller (bank). Nerve wracking. Anybody any experience with "subject to" when the reserve is met?

Tom Wood said...

Chances are you will get the property. Yes the contract is subject to, and the bank can back out, but more than likely they'll accept your bid. Congrats!