Reserve price
A reserve price is the minimum a seller will accept at auction. Below it, no sale occurs.
Confidential, almost always#
Bidders generally do not know the figure.
They discover whether it was met when the auctioneer either declares the property sold or announces that it did not meet reserve.
That opacity is deliberate — publishing the reserve would establish a floor that bidding starts at rather than climbs to — and it is also the source of the format's main problem.
The bidder's risk#
Attending costs money. Inspection, travel, a title search, sometimes a lawyer.
At a reserve auction the highest bidder may still not buy the property, and their costs are sunk. That risk is priced in: experienced bidders bid less, or do not attend at all.
Which is why an absolute auction — no reserve, guaranteed sale — frequently produces a better result for the seller despite offering no protection. Turnout is worth more than a floor.
What happens when the reserve is not met#
Private negotiation with the highest bidder afterwards, which is common and often where the deal actually gets done.
Relisting conventionally.
Re-auctioning, sometimes as an absolute auction, having learned what the market will pay.
How reserves get set#
From a valuation — an appraisal, or on distressed property more often a broker price opinion, which may be exterior-only.
And from the seller's arithmetic: what is needed to clear the existing debt, selling costs and any liens.
On distressed property that second figure frequently drives the reserve, which means the reserve reflects what the seller owes rather than what the property is worth. Where those diverge, the auction fails and everyone learns it on the day.
Minnesota sheriff's sales#
No reserve in the auction sense.
The foreclosing lender enters a credit bid — bidding its own debt, which costs it nothing to bid — and that functions as an effective floor. In most Minnesota sheriff's sales it is the only bid.
Where a third party outbids the lender, the redemption amount rises to whatever they paid, which is a consequence worth understanding before bidding competitively on a property whose owner may redeem.
Reserve auctions and the wasted-cost problem#
The structural weakness worth naming, because it explains why the format underperforms.
Every serious bidder spends before the day — inspection, title search, travel, sometimes legal advice. At a reserve auction that spend buys a chance at a property the seller may simply decline to sell.
Bidders respond rationally. They bid less, they attend fewer sales, or they wait for the post-auction negotiation where they have more leverage and no competition.
The seller's protection therefore costs them turnout, and turnout is usually worth more than the floor. That is the whole argument for absolute auctions, and it is why sellers who genuinely need certainty of sale generally end up there.