Reserve Price

Definition§

The reserve price, also known as the upset price, is the minimum price point a seller is willing to accept for a property or item at an auction. If bidding does not reach or exceed this price, the seller reserves the right to withdraw the item from the auction. The reserve price is confidential and known only to the seller and the auctioneer.

Examples§

1. Real Estate Auction: A seller lists a house for auction with a reserve price of $300,000. If the highest bid is $290,000, the seller is not obligated to accept the offer and can withdraw the property from the auction, hoping to get a better offer later.

2. Online Marketplace: An online auction for a vintage guitar sets a reserve price of $2,000. Bidders risk only wasting their effort if bids don’t meet or exceed this threshold, the guitar will not be sold.

Frequently Asked Questions§

1. What happens if no one bids at or above the reserve price?

   • If bids do not meet or exceed the reserve price, the seller is typically not required to sell the item.

2. Can the reserve price be lowered during the auction?

   • Yes, some auctioneers may allow the seller to lower the reserve price during the auction if the bids are close but not meeting their expectations.

3. Is the reserve price the same as the starting bid?

   • No, the starting bid is the initial amount at which the bidding begins, which can be lower than the reserve price to attract bidders.

4. Do bidders know the reserve price?

   • Generally, the reserve price is not disclosed to bidders to encourage competitive bidding.

5. Can items be sold without a reserve price?

   • Yes, such items are sold in “absolute auctions” where the highest bid wins regardless of the amount.

Related Terms§

1. Starting Bid: The initial bid price set by the auctioneer at the beginning of the auction.
2. Bid Increment: The minimum amount by which bids must increase during the auction.
3. Buyer’s Premium: An additional fee paid by the buyer to the auction house, usually a percentage of the winning bid.
4. Hammer Price: The winning bid or final bid accepted by the auctioneer.
5. No-reserve Auction: An auction in which the property or item will be sold regardless of the bid amount.

Online Resources§

1. Investopedia: Reserve Price
2. Wikipedia: Reserve Price
3. The Balance Small Business: What is a Reserve Price?
4. Bidsquare: Importance of Reserve Price
5. Sotheby’s: Auction Glossary

Suggested Books for Further Study§

1. “Auction Theory” by Vijay Krishna: A comprehensive guide to understanding theoretical aspects of auctions, including the concept of reserve prices.
2. “Auctioneers Who Made History” by Geoffrey Foster: Chronicles notable auctioneers and prominent auctions with interesting details about reserve prices.
3. “The Basics of Auctions” by Paul Klemperer: An in-depth study that covers the fundamentals, including the setting and strategy behind reserve prices.
4. “Pricing and Auction Design” by Dan O’Brien: Explores the implications of pricing strategies in auctions, including reserve prices.
5. “Auctioneering: The Art, The Science, The Fun” by Steve Proffitt: A practical book about the auction process, featuring insights on handling reserve prices.

Fundamentals of Reserve Price: Auction Basics Quiz§

Thank you for exploring the concept of the reserve price in auction settings and taking our quiz! We hope this enhances your understanding and prepares you for related challenges in real-life scenarios.