Auction Reserve Price and How Sellers Should Set the Number

It is the night before auction and your agent is at the kitchen table with a form and a pen. You need to write down one number: the lowest price at which the house will sell under the hammer. Write it too high and the property passes in with everyone watching. Write it too low and you may have just agreed to sell for less than a buyer would have paid in a quiet negotiation next week.

I sat on the agent's side of that table for twelve years and called a little over three hundred auctions. The reserve was the single decision sellers found hardest, and the one where they got the least useful advice. Here is how I would set it if it were my own house.

What the reserve actually does on the day

The reserve is a private instruction from you to the auctioneer. Bidding below it is just conversation. Once a bid reaches or passes it, the auctioneer announces that the property is on the market, and from that moment the highest bid wins. You cannot change your mind at that point.

Below the reserve, the auctioneer can make one vendor bid on your behalf, where the law allows it, to keep things moving. If bidding stalls short of the number, the property is passed in, and the highest bidder usually gets the first right to negotiate privately with you.

Two things surprise sellers. First, the reserve is not the price you expect; it is the price you can live with. Second, you can lower it during the auction. I have taken a seller into the hallway mid-auction more times than I can count, and roughly a third of the time they dropped the reserve by a few thousand to get the house on the market.

Where the number should come from

Agents often bring three numbers to the meeting: the appraisal they quoted to win the listing, the price guide in the advertising, and their own private feeling after the open homes. Only the last one is worth much. If you have not yet read how appraisals get inflated, choosing a selling agent without chasing the top quote explains why the first number is often a sales tool.

The evidence I would use instead comes from the campaign itself:

1. Count genuine bidders. Not inspections. People who asked for the contract, had a building report done and confirmed finance. Three or more and you have competition. One or none and the reserve should be close to what that one buyer has hinted at.
2. Collect the feedback numbers. Ask the agent for the price each serious buyer mentioned, in writing, not a summary. If four buyers said between 840,000 and 870,000, that range is the market.
3. Check the last six comparable sales, sold within six months and within about one kilometre, adjusted for condition. Ignore listings that have not sold yet. The guidance in how to set an asking price on choosing comparables applies here just as much.
4. Work out your floor. Your mortgage payout, agent commission, marketing already spent and the deposit on your next place. Below this number, selling makes your life worse. That number is not your reserve, but your reserve must sit above it.
5. Set the reserve near the bottom of the genuine range, not the middle. On the example above I would set 845,000.

That last point feels wrong to most sellers, and it is the part I want to defend properly.

A high reserve does not protect you

The common advice, sometimes from relatives and sometimes from agents trying to keep a seller happy, is to set the reserve high so you are protected. If the market will not pay it, you simply pass in and negotiate.

In my experience that advice costs money more often than it saves it. Here is why.

An auction works because bidders believe the property is going to sell today. When the auctioneer announces the house is on the market, the energy in the room changes. Bidders who were holding back start bidding. I kept rough notes for years, and on properties that went on the market at or below the middle of the feedback range, the final price ended above that middle in most cases, often by 15,000 to 30,000.

When the reserve is set above the range, the house passes in. Now you are in a private negotiation with one buyer who knows nobody else bid higher. The leverage moves to them. Sales after a pass-in, in my records, landed below what the reserve would have been if set sensibly, more often than above it.

There is also the cost after a pass-in. The campaign has ended. Advertising money is spent. Every week the property sits on the market after a failed auction, buyers start asking what is wrong with it.

The exception: if there is only one bidder and you suspect they are bargain hunting, a firm reserve is right. Passing in is better than selling at a price set by one person with no competition. Auctions with a single bidder are where sellers most often regret dropping their number.

On the day, before and during

Most agents ask for the reserve in writing on the morning of the auction, sometimes the evening before. Do not set it two weeks out. Feedback changes a lot in the final days.

Agree in advance with your agent how they will contact you during the auction if bidding stalls. Stand somewhere you can step aside privately, not in the middle of the crowd. Decide beforehand how far below your reserve you would go, and say so out loud, so you are not deciding under pressure with strangers watching.

If a buyer makes a strong offer before auction, consider it seriously. Some of the best results I saw came from pre-auction offers that forced other buyers to bid on the day or lose out. The upside and downside of the auction method generally are covered in the benefits of selling your property via auction.

And remember the honest limit of all this. I can tell you how a room behaves when a house goes on the market. I cannot tell you what your particular buyers will do, and neither can your agent, however confident they sound.

FAQ

Can I change my reserve price during the auction?

Yes, you can lower it at any point before the hammer falls. You can usually raise it only before bidding begins.

Does the auctioneer tell buyers the reserve?

No. The reserve stays confidential. Buyers only learn the property has reached it when the auctioneer announces it is on the market.

What happens if the reserve is not met?

The property passes in. The highest bidder usually gets the first chance to negotiate, and you can still agree a sale that day.

Should the reserve match the price guide?

Not necessarily. The guide is advertising. The reserve should come from genuine buyer feedback and recent comparable sales.