What are the pros and cons of disclosing your reserve price to potential buyers?

I never disclose the reserve price. As a matter of fact, I never want to know the reserve price myself. That way if a prospective bidder asks how much are they willing to accept, I can honestly tell them that I don't know. I never want to plant a number of any kind in a bidder's head. I realize this is contrary to what many auctioneers think. But this thought process has served me well over the years. By the way, I only sell farmland...usually a single tract...sometimes multiple tracts.

For high interest sales, letting folks know where we get real works best. Helps to sort out bidders, leading up to the auction, especially on high dollar items. On the other hand, keeping it quiet can lead to anticipation, since most can determine what a fair market price should be. Have used both for live/mail-in, bidding. Either way, it is not a one size fits all. Most of my auctions have a reserve, and I do tell folks when there is one, but some won't be announced until exceeded. This also comes in play for a large-lot auction where I don't utilize individual reserves. With those it would be to cumbersome. Just announce when we have the aggregate exceeded.

The items reserve should always be less than (10-20%) of the low estimate of the lot. For example, if I see the estimate $1000-1500 on an item, my assumption is the reserve (if any) is $800-900. That gives me an indication of what it can be bought for. So if I am not a buyer for at least $800, I won't bid.

Different approaches for different assets. On the real estate side, our online system simply displays reserve "met" or "not met". When approached by buyers trying to dig and scratch and grind out, my response is usually "the reserve is fair and very reasonable". On those rare occasions when the reserve isn't met, I still won't disclose. I'll use the opportunity to negotiate with the bidder to see if I can get get them to move on their top offer. I don't see a time really when it's advantageous to disclose.

Pros: 1. Transparency: Increases trust among bidders, potentially leading to more participation. 2. Reduced Uncertainty: Helps bidders understand the minimum acceptable price, encouraging more serious bids. 3. Faster Sales: Can lead to quicker decisions by buyers who know what they need to meet or exceed. 4. Avoids Lowball Offers: Discourages very low initial bids, saving time and effort.

If the auction is well publicized and the auctioneer has a strong well-established market of buyers from diverse countries then the benefits of disclosing the reserves far outweigh any disadvantages.

Cons: 1. Limited Bidding Up: Bidders may bid just above the reserve price, potentially limiting higher bids. 2. Reduced Flexibility: Sellers lose the ability to negotiate or leverage buyer competition to drive up prices. 3. Perceived Value: Can sometimes set a psychological ceiling, making buyers reluctant to bid significantly higher. 4. Market Signal: Disclosing a low reserve price might signal desperation, affecting the perceived value of the item.

Reserves should be discussed at the time of the consignment. If someone has a reserve of $1000 on what the auctioneer feels like is a $500 item, he should turn away the consignment. The cost to photograph, catalog, accept absentee bids, market, etc that item cost money. So if the consignor has an unrealistic idea of value on their item, the auctioneer should know it before even accepting the item for a sale.

Understanding reserve price disclosure laws is crucial for auction success, and they vary by state. Here are some key examples: • New South Wales, Queensland, and Victoria: You must disclose your reserve price to the auctioneer, but not to the bidders. This keeps bidders guessing and can drive competitive bidding. • South Australia, Tasmania, and Western Australia: No requirement to disclose your reserve price, unless the auctioneer asks. This offers sellers more strategic flexibility. For instance, in Victoria, informing the auctioneer about your reserve ensures they can guide the auction effectively without tipping off bidders.

As the experienced auctioneer provides a realistic estimate to the prospective consignor, he should also suggest a reserve that is not less than 80% of the estimated selling price. If they can’t agree on these reasonable terms then the item shouldn’t be accepted.