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Auction: what is the reserve price?
When you decide to sell an item, you are invited to sign a warrant or requisition for sale, a contract that allows the Auctioneer to sell the item on your behalf. When this contract is drawn up, you can set a reserve price in agreement with the auction house. This consists of a secret amount below which the lot cannot be sold. It is therefore a strategic element, a useful but by no means necessary precaution, whose characteristics it is important to know.
The reserve price: guaranteed price, but not sale price
Your work will first be appraised. This is in the form of a price range, with a low and a high estimate. For example, if you own a bronze clock with the estimate “1000/1200 euros”, this means that the Auctioneer (or expert) considers it to be worth between 1,000 euros, the low estimate, and 1,200 euros, the high estimate. These prices are understood “on the hammer”, i.e. they are the net prices given during the sale. They do not include buyer’s costs or seller’s costs.
It is important to note that this estimate does not guarantee any result. Indeed, the purpose of public auctions is to sell an item to the highest bidder. Thus, if the interest of the buyers for your object is low, it is possible that the bids will not reach the given estimate. The sale price may therefore be lower than the low estimate, just as it may be higher than the high estimate when the object attracts enthusiastic bidders. The reserve price is therefore a mechanism that allows you to ensure that your item will not be sold at too low a price. It should be noted that it is regulated by legislation and can under no circumstances exceed the low estimate. It is either equal to or lower than the low estimate.
To take our example, you can ask for a reserve price for your clock estimated at 1000/1200 euros. This reserve price may be equal or lower than the low estimate, i.e. 1000 euros. Let’s imagine that it is set at 800 euros. In this case, if the bids do not reach 800 euros, the clock will be “passed in for lack of bids” and will be mentioned as unsold after the sale. It can either be returned to you, or be the subject of an after-sale (private sale of an unsold lot), or be scheduled for a new sale. On the other hand, the clock can be sold at the 800€ level.
Please note that some auction houses allow flexibility on the reserve price. In this case, for example, the reserve price of 800 euros is said to be understood to the nearest 10%. This means that the auctioneer will actually be able to sell the clock for as little as €720. This flexibility makes it possible to sell the object at a reasonable price, close to the reserve price. If this method is practised by the auction house you have chosen, you can nevertheless refuse it by mentioning it on the contract. It is therefore advisable to look carefully at the general terms and conditions of sale when signing the contract to avoid any unpleasant surprises.
The different criteria to be considered to establish the reserve price
While the reserve price is a useful mechanism, it remains binding and can act as a barrier to sale. Its establishment is therefore subject to negotiation with the auction house. It is useful in this respect to bear in mind the following few criteria.
Firstly, the reserve price depends on the importance you attach to the sale. So, if you want the item to be sold, you should not set a reserve price or set a relatively low one. The lower the reserve price, the better the chances of selling. On the contrary, if you attach particular importance to the result of the sale, even if you do not sell the item if the bids are low, you should make the reserve price a condition sine qua none of the sale.
Secondly, the market’s interest in the type of object sold must be taken into account. Indeed, auctions fluctuate according to economic conditions and art market trends. It may therefore happen that an object, despite its historical and artistic interest, is not in great demand. This lack of market interest can be detected by looking at recent sales of equivalent objects. In this case, a reasonable reserve price should be set, in accordance with the current economic situation.
What’s more, the condition of the object must also be taken into account for the reserve price. Indeed, if your clock, to use our previous example, has many lacks, restorations or accidents, it is wise not to ask for a reserve price that is too high. These defects devalue your object on the market, and in themselves complicate the sale.
Finally, the reserve price is subject to change until the sale, depending on elements that appear after the fact. The Auctioneer may therefore contact you shortly before the sale to suggest a change to the reserve price. This request can be justified by many reasons: the absence of purchase orders, a lack of interest during the exhibition, restorations not mentioned in the description, a similar lot not sold at a colleague’s the day before… etc…
For example, imagine that a firm order has been left on your clock for 750 euros. Buy orders allow people who are unable to be in the room at the time of the sale to still participate. In the case of a firm order, a person gives a mandate to the auction house to bid on his behalf up to a certain amount. Thus, if an order has been left on your pendulum at 750 euros, this means that a buyer is ready to bid up to this limit. If no other order has been left on the lot, the Auctioneer may offer to lower the reserve price to 750 euros. In this way, your clock will necessarily be sold, either at 750 euros, or higher if a higher bidder comes forward.
In any event, it is important to note that your agreement is still required for any subsequent modification of the reserve price. Moreover, if the reserve price is not respected, you may request compensation for the loss of profit. Thus, you can refuse to reduce the reserve price of your clock to 750 euros. If the auctioneer nevertheless awards the lot at this price, you can either ask for the sale to be cancelled or ask to be reimbursed for the difference.
To conclude, establishing a reserve price is often a sensible precaution for certain objects. However, it should be set with full knowledge of the facts, as it can sometimes be an obstacle to the sale.
Auction houses strive to ensure that your lots find takers. As such, an Auctioneer may encourage you to lower the reserve price, to increase his chances of selling the item. Mr Expert’s team therefore advises you to get support in this process in order to find the perfect compromise.