The Private Reserve - Putting the agent under pressure
Establishing a reserve price is one of the most common mistakes home sellers make when selling. Disclosing your reserve price can cost thousands of dollars in the form of a lower selling price.
Essentially the seller’s money is too often left in the buyer’s pocket.
The key to avoid being stung by this trap comes from defining what the reserve price is, and what it isn’t.
The reserve price is the lowest price the owners are prepared to accept. The reserve price should never be used as a target price or confused with being the best possible price.
As a property seller, do you want the agent to attain your bottom line or discover the buyer’s top line?
A sales strategy that is aimed at the vendor’s bottom line will quite often cause the property to sell below the buyer’s top line.
If you set a reserve price of $500,000 and sell for $520,000, would you consider it a good sale if you found out the buyer was prepared to pay $540,000? Do you celebrate the $20,000 over your “reserve
price” or do you commiserate the extra $20,000 the buyer would have paid?
When dealing with agents, remember the lowest price you say that you are prepared to accept, is usually the highest price you will achieve.
It is for this reason that your reserve price must never be disclosed to any buyers or the agent.
Every Sunday morning, newspapers report how auctions performed in relation to the reserve price, the seller’s bottom line. No mention or focus is ever put on what the buyers were prepared to pay.
The focus of the auction is to “at least meet” the owners reserve, to ensure the property sells “under the hammer”. If the auction exceeds the reserve price, even better.
If the auction fails to meet the reserve price, pressure is then applied to the “vendor” to reduce the reserve price. This pressure is applied whilst the crowd of strangers eagerly await the outcome in the “vendors” own backyard.
In such circumstances, the best buyer is usually watching the vendor’s price being publicly “crunched”.
Define what the agent’s true role is when you employ them to handle the sale of your home.
The agent’s role is to submit all interested buyer’s highest offer, with acceptable terms and conditions, for your consideration. As the property owner and paying client, this is how it should be. Yes, the seller is the paying client, this is why the agent has a fiduciary and professional duty to deliver all potential purchasers’ highest price.
Many times it is forgotten that the seller is the paying client.
The reserve price that you have set is private. Instruct the agent to establish the highest offer that can possibly be attained in the marketplace. When the agent has done this, as the owner, you have one of three decisions to make. Accept the offer and sell. Decline the offer and withdraw from the market. Decline the offer and continue searching for another buyer. If the agent has truly delivered the highest possible price from the buyer, the buyer is unlikely to submit another higher offer. But you can always ask…
When the agent is focused on meeting your bottom line, unfortunately that figure becomes the goal. If you have the agent focused on the best price every buyer will pay, without disclosing your reserve price to the buyer or agent, the pressure is on the buyer and agent.
Deflecting the pressure this way is the complete opposite as to what happens at a public auction when the agent is aware of your reserve price.
And as many sellers have found in dealing with agents over the years, private reserve equals higher selling price.
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