To Reserve, or Not to Reserve

Is it better to set a reserve price at an auction?

The point of setting a reserve price is obvious – protect the bottom line, keep yourself from selling anything for less than it’s worth.  It’s not a dumb concept by a longshot, in fact it’s very smart.  But sadly, there is no easy answer to the question, but there are trends.  Is it better to have a reserve?  Yes.  But not always.

Why set an auction reserve?

To protect the value of a product at auction.  If a car is worth $10,000 it would really be disappointing if it sold for much less.  So, slapping a reserve on the price ensures that the bidding will go to $10,000 – well, not really.  Afterall, things are only worth what someone is willing to pay.  If no one in the audience is willing to go $10,000, that’s that.  And because of the reserve – the car remains in your possession.  If you’re not in a hurry to sell, that’s fine – but most people want to sell and move on with their lives.  So, it’s very personal.  How quickly do you want to sell the vehicle?  Conversely, without the reserve, the vehicle will sell – but will it achieve your $10,000 hope?  Are you okay potentially losing money?

Am I going to lose money?

That’s up to you – how much money have you put into the car and how much profit do you want?  If you’re a professional flipper or a dealer, the profit is your business.  It’s how you make a living.  But if you’re a hobbyist, it’s our thought to not worry too much about losing money (at least, not a lot) and enjoy the experience the vehicle gave you.  If you make a profit, great – but here’s to new adventures and moving forward in life.

Why not have a reserve?

While it sounds counterintuitive, there is sound reasoning behind just winging it and selling the car without reserve.  The bottom line is this – anxiety.  People bidding on an item without a reserve know the item will sell – no matter what.  So, they bid.  If it’s got a reserve, and the reserve is not met, two things happen – one, the buyer can go privately to the seller and begin negotiations, and two, because it didn’t meet reserve, the buyer is in a position of power because the item has now proven it’s not worth the reserve.  At least, on the surface. 

However, an item up for bid without reserve is going to go to a new owner right now.  So, if someone wants it, they know they need to bid.  It only takes two bidders to create a bidding war, three can cause outright frenzy – when that occurs, generally speaking, the bidding goes well beyond the $10,000 value the item was thought of being worth.  And, historically, vehicles without reserves sell for more than their perceived value – we’ve seen cars worth $10,000 go for $15,000.  But, we’ve also seen cars worth $10,000 trade hands for $7,000.  So, yes, it’s a gamble.  But, we’ve also seen cars with a reserve of $10,000 stall at $7,000 and the seller is stuck with the car, and then needs to negotiate with someone to buy the car, or just drag it home and start the process all over.  Again, “to reserve or not to reserve” is very personal.

 Photo Credit: Hikersbay Hikersbay