Setting an Auction Reserve

Can I Set A Reserve On My Farm Auction? 

No pun intended, but absolutely! Setting a reserve takes careful consideration, but it all comes down to this: If you set a reserve too high or too close to market value, you can hurt your final price. If you set it too low, the farm could sell below the price you expected.

What is a Farm Auction Reserve? 

First, and most important, it’s helpful to understand what a reserve is. A reserve is a minimum amount you authorize the farm to sell for. Some people call it a “minimum” or “bottom”. Reserves are not intended to be an asking price, but rather to be used as a protection point. The area between your reserve and your expected sale price is what we at DreamDirt call the “grey area”. It’s the area where sellers take a little risk in not achieving their hopeful asking price, but it’s also the most important part of the auction in terms of momentum and bidding activity.

With a reserved auction, momentum in bidding is the most valuable element for the sellers. We are always trying to create momentum in the auction. In order to achieve this, we have to work within the parameters the seller has set for each auction, and the biggest block to momentum is the reserve amount. Potential buyers who are very familiar with the auction process fully understand the auction really starts once it’s announced that the reserve is lifted. Once that happens, it changes the dynamic in the room and buyers become more hopeful of success and more committed to the process. They know how to read when the auctioneer is struggling to achieve the reserve and the higher the number gets without the auctioneer announcing the reserve is met the more difficult and slow the auction becomes. It’s very possible bidding will stop short of the actual market value. Especially in auctions where the reserve is also the expected market value, or what we call a 100% reserve.

The auctions we’ve sold with the lowest reserves by far generate the most momentum and the highest prices for our clients. We generally ask a client to keep their reserve to 80% of expected market value, but we have had clients reserve properties even lower. Our most memorable auctions, and our highest results, have always come where reserve prices were in the 60% range. This takes the reserve off at a point in the auction where it builds the momentum earlier and helps a seller cross the finish line in shorter time, typically higher in price than expected.

When you set a reserve, the best practice is to consider your expected outcome, then keep backing up by $100 until you reach a point you can’t stomach selling at. For example, let’s imagine you believe the property is worth $5,000 per acre. Can you live with a sale of $4,900 per acre? $4,800 per acre? $4,700 per acre? Keep doing this until you reach a point that you tell yourself no, you can’t live with that price, and that’s your reserve point. Does the auctioneer stop once the reserve is achieved? Some people believe this, and so they try to set the reserve as high as possible to avoid this happening. I often tell potential clients that we are only as good as our last sale meaning the public, and other sellers, judge us based on the results we achieve.

We fully believe that selling the property because we have achieved the reserve would be foolish on our part. You can trust that once the reserve is achieved, we will be performing at peak until we absolutely cannot get one more person to bid!