Things to Know About Reserves

"Reserve" is a dirty word in the auction industry.  The typical reasons a consignor requests to have an asset published with a reserve are: 

• They don't trust the auction format. They don't understand that the best way to determine market value is to put the asset in front of thousands of bidders.
• They have an unrealistically high perception of their assets'worth. 
• They believe their asset won't be seen by the right buyer(s), the ones that truly understand the value of the asset they're selling.  
• They just are not ready to sell the item.    

If your consignor falls into one of these categories, you're best/most profitable move may be to pass on the consignment altogether.  The bottom line is don't agree to sell an asset with a reserve before you've done the due diligence necessary to determine the asset's value.

The formula for determining the highest acceptable reserve for an asset is:

1. Determine asset value --- can be done quickly and easily by doing a search of K-BID's (or any online auction website) closed auctions.  This will tell you what 'like' items have sold for in the recent past.
2. Decide what percentage of value you feel is acceptable for a reserve --- usually between 50% - 70% (never higher than 70%).
3. Multiply asset value by percentage.  This will be the high end of what's acceptable for a reserve.

Other issues to consider:

• If a ‘like’ item has not previously sold on K-BID, is it the type of item the affiliate would expect to do well on K-BID?   
• Will bidders appreciate the value of the item?  Sometimes items are so specialized bidders don’t have any idea how to value the item. In this case the affiliate either needs to provide the education the bidder needs (through the item description, youtube, PDF, link to a website, etc.) to assess true value.  In some cases, the affiliate may end up determining K-BID is not the best venue for selling the item.  It is better to forego an item almost assured to not reach the reserve, than it is to publish the item and disappoint everyone -- the seller, the bidders, the affiliate, and K-BID.
• Will the timing of the sale make a difference in the final bid price?  While an item may have a history of selling well on K-BID, affiliates need to consider when they are publishing certain items to yield the highest return for the seller --- selling a boat in May will receive a much higher bid price than it will in October.  Has the affiliate or another affiliate just recently sold a number of ‘like’ items, thereby saturating the target market, which will drive bid prices lower?
• If you choose to list a lot with a reserve, make sure you are being compensated for doing so. Consider charging a percentage of the reserve requested. Collecting the reserve fee upfront, to be deducted from the settlement if the asset sells. Doing this, will assist in the seller setting a reasonable reserve.
• K-BID will charge you, the affiliate, a Reserve Not Met fee for any lot that does not meet the reserve, or if the reserve is lowered after the high bid was placed, and the high bidder opts not to purchase.

It’s important to recognize as an affiliate you are serving 2 masters- your consignors and your bidders - and both are very important.  While no one wants to see an item sold way below value (if that were the case, everyone’s supply lines would dry up); it’s critical not to burden yourself with posting items that won’t meet the reserve for some reason (see above).  In the end, the most important relationship an affiliate has is with their bidders.  Bidders need to trust the affiliate isn’t wasting their time by posting items that will never sell.  Bidders tend to be loyal to the affiliates they believe sell the stuff they are interested in --- it doesn't take long for bidders to lose interest in an affiliate’s auctions if they have spent the time to watch and bid on their auctions, but continually see items not selling because the reserve wasn't met.