At a pre-auction open house I was speaking with a real estate investor about what was going on regarding real estate in the neighborhood. She finally blurted out: Why don't the sellers just disclose what the reserve price is and save us a lot of time and trouble?

In reply I asked if she knew what the reserve amount for the house across the street is. (It had been on MLS for over 120 days and, after 2 price reductions, it was now listed at $589,000.) In other words, what is the lowest amount that seller will accept to sell their house?

You don't know. Would you ask the seller across the street to simply make their true reserve amount the actual listing price on the MLS? No. You wouldn't take such a stance because everyone is entitled to their share of profit (or loss) without needing to disclose the actual amount of profit (or loss) in the offing. That's the nature of commerce. So why would the sales scenario for a real estate reserve auction be any different? It isn't. The reserve price is undisclosed.

With a reserve auction the seller has a publicly undisclosed minimum amount - aka the reserve price - which s/he hopes to achieve at auction. After the bidding reaches a certain threshold, the property being auctioned will sell subject to confirmation of the seller, generally on the spot during the auction, or within the next day or two. The seller may accept the highest bid attained via auction whether it's higher or lower than the undisclosed reserve price. The seller also reserves the right to reject the price achieved at auction as well as the right to counteroffer the highest bid.

A reserve auction for real estate puts a lot of power and control into the hands of the seller. Sometimes too much power. Unwitting, talkative sellers sabotage their own auction and drive bidders away by proclaiming to all and sundry that they won't be taking a dime less than $___ on auction day.

What the seller cannot control is the price a willing buyer will pay for that property on any particular day. This is what auctioneers call the true market value of the property being sold.

As a rule only the seller and the auctioneer know what the reserve price is. Although this could be a source of frustration to potential buyers, it shouldn't be.

Because the reserve price is undisclosed, this can actually work to the benefit of the auction buyer, especially when the high bid falls short of the seller's predetermined reserve amount. Why? Because the seller has the option of accepting the high bid regardless of the undisclosed reserve price.