What Exactly Is A Reserve Price?
Most auctions have something called the reserve price, which quite frankly is either loved or hated by both bidders and sellers. While you can argue that anything put into an auction to make it more fair to both the buyer and seller is a good idea, some things can also artificially boost the selling price of an item. The other hand, there are unscrupulous bidders who will find ways to lowball bids. Thus, you can see the reserve price is a compromise to keep auctions fair and reasonable to both buyers and sellers.
So what the reserve price actually is is a sometimes hidden, sometimes open price requirement that needs to be met before the seller is obligated to sell the item. Now this is completely different from the opening bid, which is the point where an auction would start the sale. Rather, this is the point that has to be reached for sale to be successful
To make it even more interesting, some sellers will even negotiate a reserve price if the bids are close enough. However, as the seller is still not required to sell the item if the reserve price is not been met, this negotiation can sometimes fail. When that happens, it’s called a walk away point.
A Deeper Dive
More auctions these days are run either exclusively online, or a combination of online and in person. In at least the online version, bidders will see a notification that the reserve has been met, and the bidder that meets the reserve becomes obligated to the bid
Additionally, reserve prices may incur an additional fee as this can be seen as an extra feature to the auction. Even more interesting, is that some auctions allow the seller to lower the reserve price during the auction if they feel that the reserve price won’t be met. In any scenario where reserve price in place, sellers are not allowed to bid on their own objects or services as to prevent any manipulation of the bidding.
Reserve Price Is Different Than Opening Bid
Some people may confuse the reserve price for the opening bid, but they couldn’t be any more different. While the reserve price point that bidders need to get to for the item to be sold, an opening bid is the important first step to get there. It’s a minimum bid to start with. This can be very important to understand as it can have a huge impact on how well an object or service will sell.
If you set the price too low, the end result can seem very obvious. You’re going to require more bids to get to the reserve price. It’s also going to make it harder to gauge the interest in the object or service, as it will leave people guessing when they’ll finally get to the reserve price.
If you set the opening bid too high, then you run the risk of pushing away bidders, as many will not know how far away the reserve price is. If the opening bid is too high for their liking, they may just assume the reserve price is much more than they are willing to spend. This is why it’s very important to get proper appraisals done by professionals who have worked with many bidders in auctions, and can understand the right range of opening bids for your items and services.
To Sum It Up
In theory, the higher the average bids of an auction, more likely it’s going to have reserve pricing. As auctions evolved over the years, more and more people would find ways to manipulate the bidding. It was only natural that systems would be set up and put into place to keep bidding and selling a fair practice, especially as the amount of money exchanging hands got higher and higher. In the end, systems such as reserve prices and opening bids help level the playing field for bidders and sellers alike. One has to wonder what the next evolution in fair auction practice may be.