Revealing the reserve price prior to an auction may be at odds with what most agents do – and illegal in some states – yet for one agent in Victoria, the approach has yielded positive results.
John Keating, managing director at Keatings Real Estate in Woodend, Victoria, openly advertises a property’s reserve price prior to auction day.
While he acknowledges that many agents in Victoria don’t agree with his approach, he’s adamant it works. And what’s better, he said the transparency is applauded by vendors and an increasing number of agents – albeit quietly lest their competitors find out and lambast them accordingly – who appreciate his upfront approach when it comes to setting a realistic price.
“What I’m doing would require a 180 degree turn by most agents involved in auctions,” he told Real Estate Business.
He pointed to recent examples as evidence of his success, including one which involved a published reserve of $325,000 – the opening bid was $275,000, and it sold for $330,500.
A second example on the same day was a property with a published reserve of $495,000 – this had an opening bid of $450,000, and sold for $506,500. A final example was a property with a published reserve of $3 million. The opening bid was $2 million, and it passed in at $2.85 million following involvement from three separate bidders at $2.775 million, $2.825 million and $2.85 million. This sold immediately after auction for the declared reserve price of $3 million.
Knowing the reserve price is a big attraction to prospective buyers because there is transparency of the price point at which the property will be “on the market” to be sold to the highest bidder, he continued.
Mr Keating said his ‘golden rule’ is vendors can decrease the reserve price prior to the auction, but never increase it. And he backs his policy with action, having walked away from one deal when a vendor sought to increase a $2.5 million reserve.
“We cancelled the auction,” Mr Keating said. “It was simple. If you want to be a trusted professional, you don’t surrender a reputation built over decades by capitulating to any two per cent commission.”
Mr Keating, who has been in the industry since 1967, has been advertising reserve prices for nine years.
He acknowledges that in some other states – Queensland, for example – it’s illegal to reveal what the reserve price is. Yet he points out that agents do come to him and applaud him for his approach. Moreover, he notes the South Australian government is moving to make the reserve price more transparent in auctions held in that state.
Will Hampson, an independent auctioneer at myauctioneer.com.au, recently told Real Estate Business that agents who talk price during an auction campaign not only serve to attract the attention of regulators targeting underquoting and, at the other extreme, may also scare potential buyers away with overblown price estimates.
On what gives Mr Keating the confidence to talk price at the start of the auction campaign, Mr Keating said any agent who knows their territory – his is a regional area about an hour north of Melbourne – should be able to estimate a property’s value.
“It’s not an exact science, but agents should be able to get within about 10 per cent of the sale price,” he said. "Most neighbours can.”
For Mr Keating, being open and honest about the reserve price is all about raising the industry’s standards, working towards a better auction system for all stakeholders, and limiting the chance for unscrupulous agents to underquote.