Dear Lee,

Most auctions sell pieces with a “reserve.” That’s the lowest price acceptable to the seller, but it’s not usually disclosed to bidders. The auction catalog just includes the word “reserve” as part of the item’s description. If the winning bid is below the reserve price, the item doesn’t sell. If the bid is higher than the reserve, the item must be sold. The auction charges a fee if you set a reserve. Sometimes it’s good to have a reserve, but sometimes it causes problems. Here are a couple of recent auctions that show you what we mean:

1) Martin Donnelly’s tool auctions (MJDTools.com) don’t ever have reserves. A tool chest with original rare tools, a mid-1800s bill of sale, and pictures and documents about the chest’s owners was included in Donnelly’s September auction. Estimated price was $75,000–$150,000 for the lot. Donnelly thought the chest and tools would bring more money if sold separately, but the owner insisted the chest and contents be sold as a single lot with no reserve. It auctioned for a bid of only $11,400. The owner of the chest probably lost a considerable amount of money by not separating the tools from the chest.

2) The 1989 document banning Pete Rose from baseball for life was offered for sale at a Goldin auction (GoldinAuctions.com) in West Berlin, N.J., in November. The estimate was $500,000–$1,000,000 and there was a reserve. There were eight bidders, but the final bid was under $260,000. Since the high bid didn’t reach the reserve (the auction has not said what the reserve was), the document didn’t sell. Ken Goldin says he is now trying to sell the document privately for the owner. In the auction world, if a painting or other valuable item doesn’t sell at an auction, it’s difficult to put it up for sale again within the next five years. Potential buyers worry that something is wrong and the suggested value too high. In other words, there may not be a collector anywhere willing to pay more than $260,000 for the Pete Rose document. So the seller will either take a loss or wait a few years to try again.

What would you do? Play it safe with a reserve and possibly wait years to get a higher price or sell without a reserve to guarantee immediate payment?