Are hidden reserves a necessary thing? With two big downtown auctions coming up--the El Dorado and 655 Hope--the Downtown News gets answers to why reserves are used. Chris Longly, deputy executive director of the National Auctioneers Association, weighs in to explain that it's essential to bidding up the units, while Kennedy Wilson's auctioneer Rhett Winchell notes that buyers really want aggregate value.
From the Downtown News: "If the unpublished reserve method sounds secretive, Longly of the National Auctioneers Association says the practice is fundamental to most auctions. In fact, he argues that publishing the reserve price is counterintuitive to the logic of an auction, as it sends the message that the seller would part with the unit for close to that price, thereby dissuading bidders from offering much more.
“You’re going to have far more bidders at $165,000 because they’re going to go in thinking that I can get it for $165,000 but bidding is going to go from $165,000 to $220,000 real quick and then you’re going to find who’s the serious buyer,” Longly said. “At $245,000 you’re going to dwindle out your buyer pool.”
Kennedy Wilson President Rhett Winchell said that under the firm’s system, depending on how an auction is playing out, the developer can also lower the unpublished reserve price. Most sellers, he said, don’t typically focus intently on individual unit prices — they are more concerned with the aggregate value. So if some high-demand condos go well beyond their reserve levels, other units with lower demand may be released for less than their reserve prices, Winchell said.
· Understanding the Auction Action [Downtown News]