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Before the Auction: Understanding Reserve Auctions

If you want to unload an expensive item, you might consider listing it as a reserve auction. This auction format allows you to set the minimum price at which you will sell the item. Reserve prices safeguard you against having to sell the item at a price that is lower than you intended, which is always a danger in a straight auction. Still confused? These tips will get you up to speed fast.

Why Reserve?
Well, a couple of reasons. First, you might specify a reserve price if you are unsure of the real value of an item. By setting a reserve price, you reserve the right to refuse to sell the item if the market value is below a certain price. On a related note, more crafty sellers will set an extremely high reserve to do a little "market research." The auction thus becomes a way of finding out what people are willing to spend.

Second, if you deal in high-end collectibles you can use reserve auctions to ensure that you don't take a financial hit. For example, a seller who puts up a $1,000 item up for auction without a reserve price runs the risk of having to honor an extremely low bid. Not surprisingly, sellers like reserve auctions, whereas buyers favor straight auctions.

First Things First
So how does it work? At the start of the auction, you simply set the reserve price (the minimum price you'll accept for the item) and the opening bid price. The reserve price will never be revealed; however, the auction listing will be amended when the reserve price is met. Although the reserve price is not listed per se, it can be extrapolated when a bidder bids at or above the reserve price.

If the reserve price is not met (in which case a fee is sometimes charged to the seller), you are under no obligation to respect the high bid. In this situation, you have the option of relisting the item and setting a slightly lower reserve price, or switching to a straight auction in hopes of attracting more bidders.

Guesswork
Be aware that many bidders prefer straight auctions (in which there is no mandatory bid) and will not bid on an auction with an undisclosed minimum price. Some bidders also prefer to see the reserve price set as the opening bid in a straight auction because it eliminates guesswork on their part and indicates how realistic their maximum bid is. Bidders might raise their maximum if they see that it is not too much lower than your opening bid. They'll never know that, though, if you use a hidden reserve price.

Conversely, setting a market value reserve assures you'll get the price you want even if you get only one bid! Of course, that bid may not ever come. Finally, as counter-intuitive as it sounds, some sellers set a reserve and then reveal it in the item description in hopes of eliciting a first bid that meets the reserve.

Next Page | Tell me more about reserves!