Reserve Price

Reserve Price: Meaning and How It Works in Auctions

A reserve price is the minimum amount a seller is willing to accept for an item offered at auction. It protects sellers from having to part with an item for less than they consider acceptable, while still allowing the auction process to generate competitive bids.

How reserve prices function

• The seller sets a minimum acceptable price (the reserve). If bidding does not reach that level, the seller is not obligated to sell.
• The reserve is often hidden from bidders; auction platforms may simply display whether the reserve has been met (e.g., “Reserve Not Met” / “Reserve Met”).
• Once a bid meets the reserve, the bid becomes binding: the buyer is obligated to purchase and the seller to sell at that price.
• Some marketplaces charge an additional fee for setting a reserve and may permit the seller to lower (but not raise) the reserve while the auction is live.
• Certain auction formats—such as absolute auctions—do not allow a reserve, and owners are usually prohibited from bidding on their own items to avoid manipulation.

Reserve price vs. opening bid

• Reserve price: the seller’s minimum acceptable sale price.
• Opening bid (starting bid): the suggested amount to begin bidding. It is used to attract bidders and can be set lower than the reserve to stimulate interest.
• Important distinction: a low opening bid can encourage participation, whereas a high opening bid risks deterring bidders even if later lowered.

Example

An auction house lists a stamping press with an opening bid of $100,000 and a reserve set at $250,000. Bidding reaches $200,000 but does not meet the reserve, so the item is withdrawn and not sold.

Buyer reservation price

Buyers also have a reservation price—the maximum they’re willing to pay for an item. The auction ends in a sale only if a bidder’s maximum willing amount meets or exceeds the seller’s reserve.

Visibility and bidder reaction

• Whether bidders can see the reserve depends on the auction rules. If hidden, bidders can at least see when the reserve has been met.
• Some bidders dislike hidden reserves because they introduce uncertainty and can reduce perceived chances of securing a bargain.

Consequences if the reserve is not met

• The item is not sold.
• Bidders may feel their time was wasted if competitive bidding doesn’t reach the seller’s minimum.
• Sellers can relist, negotiate privately with top bidders, or consider lowering the reserve to generate future interest.

Practical tips

For sellers:
* Consider a lower opening bid to attract participation, then rely on the reserve to protect the minimum acceptable price.
* Set the reserve based on realistic market value—too high a reserve can prevent sale and discourage bidders.

For buyers:
* Understand the auction’s rules about reserve visibility and whether reserves can be changed.
* Decide your maximum (reservation price) before bidding and avoid getting caught in bidding wars beyond your limit.

Key takeaways

• A reserve price is the seller’s minimum acceptable auction price; the seller is not required to sell if it isn’t met.
• The opening bid is a separate concept and is meant to kickstart bidding.
• Buyers have their own reservation price—the most they’ll pay.
• Rules about reserve visibility and changes vary by auction platform and format; review them before participating.