It is not unusual for a classic car owner looking to sell a car in Los Angeles to turn to an auction house. Los Angeles, New York, and even Orlando are all big markets for auto auctions. If you have ever seen one of these auctions on TV, you may have heard of reserve prices. But do you know what a reserve price is? Do you know what a reserve does and does not tell you?
We have been in the cash for cars business for a long time. As such, we have a pretty good knowledge of how auto auctions work. Whether it is a big-time auction conducted by a nationally known auctioneer, or a local sale being orchestrated by a municipality, reserve prices are standard fare. Unfortunately, there are a lot of reserve price myths out there.
We want to clear up some of the confusion by explaining what reserve prices do and do not tell you about auction cars. Understand that a reserve price is the minimum amount a seller is willing to accept.
They Don’t Tell You What Sellers Think
Again, a reserve price is the minimum amount a seller is willing to let a car go for. But that price does not tell you anything about what the seller actually thinks of the car’s value. A seller may think their car is worth $25,000, yet they are willing to take $20,000. The lower price is the reserve price.
The thing is that you never really know how big the gap is. Some sellers undoubtedly set the reserve price at whatever they think the car is worth. Others are more pragmatic. They set the reserve price as though it were the starting price, even though that’s not how auctions work. They expect to get a lot more than the reserve when all is said and done.
They Do Tell You What Auctioneers Think
In most cases, sellers ask their auctioneers for pricing advice. That being the case, a reserve price does tell you what the auctioneer is thinking. A reserve price of $25,000 tells you that the auctioneer believes the seller should get at least that much. The auctioneer would know.
One caveat to all of this is an auctioneer’s recommendation to set the reserve price artificially high. This tactic is sometimes used to move cars an auctioneer thinks they will have trouble selling. By setting a high reserve price and then having the seller drop the reserve during bidding, the auctioneer convinces potential buyers they are getting a steal.
There is no way to know for sure if this sort of thing is going on. Buyers just have to be careful to observe auction proceedings in detail. If an excessive number of reserve prices seem too high, and sellers are being convinced to drop them, there could be a bit of manipulation in the works.
They Do Not Tell You What a Car Is Actually Worth
One of the biggest misconceptions about reserve prices is that they represent a ballpark figure of what a particular car is worth. They do not. What applies to cash for cars in Los Angeles also applies to the most sought-after car being sold at an LA auction: a car is only worth what someone is willing to pay for it.
You can have a car that fetched $50,000 at a 2020 auction but is struggling to get a $40,000 bid in 2022. Nothing about the car has changed, other than the fact that it is aged two years. So why the lower price? Because the demand for that car isn’t there. Ultimately, the only thing that determines a car’s value is demand.
They Don’t Tell You What Has Been Done to a Car
Reserve prices also do not tell what has been done to a car. For that, you need to see receipts and service records. As a side note, you should always ask for receipts and service records before purchasing a used car. They are your key to understanding what the current owner has done to maintain the vehicle in question.
On a similar note, sellers often settle on reserve prices after considering the value of their cars plus the amount of money they have to put into them. That is a mistake. Maintenance and repairs certainly add to the value of a used car, but not by that much. Demand is still king. A used car may not fetch the price a seller is looking for despite that seller having put a ton of money into it.
They Do Tell You If a Car Is in Your Budget
Finally, reserve prices do tell you if a particular used car is in your budget. Though sellers are known to drop reserve prices from time to time, this is not the norm. So you’ll know right away whether a car you are looking at is even in your wheelhouse. If the reserve price is too high, move on.
There are occasional instances in which a car’s reserve price is just slightly above a buyer’s budget. In such cases, there is always hope. If the car doesn’t get enough action to meet the reserve price, the auctioneer will prod the seller to consider dropping it by a few thousand dollars. In some cases, sellers can be convinced to eliminate the reserve price altogether.
Reserve prices act as a way for sellers to get a minimum amount for their cars. But they are not the be-all and end-all of auto auctions. We know this from experience. As a company that buys and sells used cars in Southern California, we can tell you that reserve prices are just a tool for facilitating sales.
If you are ever at a used car auction looking to score a great deal, do not look into reserve prices too deeply. They aren’t magical. They don’t define how much you should pay for a given car. Think of reserve prices as more of a guideline than anything else.