At an auction, the seller’s minimum is known as the ‘reserve’. That’s the price at which the property can be sold.
Many properties sell above reserve. When this happens, the auction is hailed as achieving a high price. True. But it is not true to say it is the highest price.
It is not the auction that achieved the price, it was the buyer’s willingness to pay more than the seller’s minimum. The buyer would have bought the property for the same price, auction or not.
One of the major reasons auctions are popular is the ‘over reserve’ phenomenon. Agents say, “Look how much extra we got!” With a ‘normal’ sale, properties rarely sell for more than their asking price.
However, there is a big difference between a ‘reserve’ price and an ‘asking price’. A reserve price is the bottom price. An asking price is the top price.
Auctions focus on the seller’s minimum price. They do not focus on the buyer’s maximum price. Provided the buyer’s price is at, or above, the reserve price, the property is sold. This is why many buyers purchase below their maximum at auction.
Auctions give sellers the chance of getting more than their minimum. However, if a skilled negotiator handles a Private Treaty sale, the sellers have a much better chance of getting the highest price.
It is therefore impossible to guarantee the highest price at an auction.
For this reason, auctions are not always the best way to sell a property for the highest price.
– Gary Pittard