At an auction, the property cannot be sold until the bidding reaches the sellers reserve
price. Many sellers that sign up for an auction are comforted by the fact that the reserve price will protect them against underselling. The reserve price is usually set prior to the auction in a non threatening, low pressure environment.
This first reserve is then given to the auctioneer in writing on auction day.
If the auction stalls below the reserve price, which is happening in many
instances at present, the auctioneer and agent will then focus on the second
Many sellers are unwittingly caught out by the second reserve price. They are usually unaware that a second reserve price was even on the agent’s agenda.The second reserve is usually the price point below the written reserve at which the auction has stalled. Therefore the property is likely to pass in if the seller does not drop their price.
The crowd will be told by the auctioneer, “ladies and gentlemen, please wait a
moment whilst we take instructions from the vendor/s”. Suddenly the pressure of a crowd and deadline, that was meant to be on the buyers to come up in price, is now on the seller to come down in price. The agent does not require the second reserve to be in writing, they just need the seller to nod their head in agreement. The seller is given little if any
time to consider their thoughts before they “lose to the emotion of the auction”. Cutting down a seller’s thinking time in a high-pressure environment is part of the agent’s conditioning process to eliciting the second reserve. A quick decision is a good decision, for
the agent… And buyers who stumble upon a seller that succumbs to the pressure.
(Source: Harris Partners)