In addition to looking and fawning over watches, I also buy them on occasion. A typical venue for my consumerism is eBay. I like the thrill of the search and finding a rare item, as well as the system used to win auctions or purchase items. eBay is a wonderful resource, and I recommend it as a tool for everyone, regardless of whether you buy or sell. As such, I like to take the opportunity every once in a while to share tips and thoughts on using eBay based on my years of experience.

Today I am going to talk about the “reserve” price. This concept is almost as old as auctioning itself and serves a couple of purposes on eBay. The reserve is set by the seller, and can be changed during the auction if the reserve is not met. In short, I don’t particularly like reserves, and urge sellers to disclose the reserve price. More on that in a bit.

To explain what the reserve is, first take a look at what eBay has to say about reserve prices here.This is good information, but eBay doesn’t give you the whole story. In reality, reserve prices serve two purposes. First, it is a way to reduce the cost of the auction for the seller. eBay’s pricing system differs depending on the opening price of the item. There is a cheaper auction listing price associated with listing an auction starting at $1.00, versus a $100 or $1000. So as a seller, you can reduce the initial listing cost by offering the auctioned item to start at a lower price, but not actually selling it until it reaches a threshold amount (the reserve price).

The second reason for having a reserve is psychological, and has to do with our natural desire to want to compete. An auction starting at $3,000 for an item with a $5,000 value is far less interesting than one that starts at $1.00 for the same item. Starting an auction with a low opening bid is an excellent way to get people excited and bidding. Once people start to bid (being attracted by a low opening bid), the idea is that they will start to compete with each other to “win.” The mental need to win, combined with the desire for the item they are bidding together creating a very healthy bidding environment. For this reason, the reserve price has a decent purpose and is often used. However, this ideal situation of having a bidding frenzy that seller’s get excited about is less common than you might think. The reality is that only the most desirable items are able to enjoy a large bidding war that exceeds the reserve price. Most items placed with a reserve price do not sell.

Why don’t they sell? Again, two reasons. Because there is perhaps not enough demand, and second, because the buyer has no idea what the reserve price is. Most important bidding occurs in the final minutes of an auction. A time when buyers decide how much the item is worth it to them, and bid accordingly hoping they don’t get out-bid. The system rewards quick decision making, and it is only the rare bidder will bids so high as to alienate other bidders. The idea is to pay enough, but not too much. Thus auctions with a reserve price don’t sell, because no one ever reaches the reserve price in the final moments of an auction. See the above image as an example. Here an auction ended without the reserve price being met. You can see that the auction enjoyed 8 bids, likely more if the auction reserve would have been met. There is obvious interest in this item, but the reserve price was not met, the item did not sell, and you have a frustrated seller, and frustrated buyers.

Again, the reserve price is held in secret. As a buyer, you have no idea what it is. The hope is that you just keep bidding higher until you reach it. But that is rarely the case. Buyers will get discouraged and simply not bid, or wait until someone else has reached the reserve price to see what it is. If the reserve price is not met, the only way of communicating what it is to buyers is to simply tell them what it is.

So this is my advice to people wishing to successfully sell on eBay; if you insist on placing a reserve price on an auction, write what the reserve price is in the auction description. This way you can save money on the initial listing cost, and you’ll be sure that if the price is fair and there is demand. People will bid. If the auction is not a success, you’ll know that the price you are asking is too high given the current demand. Otherwise, you simply have to start an auction at the lowest price you will accept for an item, and save everyone a headache and wasted time, or just place it as a “Buy It Now” item at a price you’d be happy with.

Alternatively, if you are a buyer interested in bidding on an auction with a reserve price, it would behoove you to simply ask the seller what the reserve price is. Easy enough, considering a lot of desirable watch auctions are listed with a reserve price, and it is helpful to simply know what that price is. Happy eBaying.