Auction terms explained: hammer price, reserve, increment, premium

Auction language is old, borrowed from a trade that has been doing this for three hundred years, and it turns up in places it does not belong. You are running a Friday evening in a village hall and somebody asks whether the Renoir print is subject to a reserve. Here is what the words mean, and which of them you actually need.

Hammer price

The hammer price is the number the bidding stops at. It is named after the gavel the auctioneer brings down to close the lot, and in a saleroom it is the last thing said out loud before the next lot starts.

What matters is that the hammer price and the amount the winner pays are not always the same number. At a commercial house there are fees on top. At a charity evening with no fees, they are identical, and that is the arrangement most volunteers want: the screen says four hundred, the winner pays four hundred, the charity gets four hundred.

Reserve

The reserve is the lowest price the seller is willing to accept. If the bidding stops below it, the lot does not sell. In the trade that is called being passed, or bought in, and the auctioneer moves on without a sale.

For a charity auction, reserves are usually a mistake. The instinct is understandable: somebody donated a case of wine worth a hundred and twenty, so you set the reserve at a hundred and twenty. Then two people bid it to ninety-five, it goes unsold, and you have raised nothing and embarrassed the donor. A donated lot has no cost to you. Whatever the room pays is profit. If you must protect something, set the reserve well under what you hope for, and tell nobody the exact figure.

The professional version of this shows up in the record books. In 2018 a Modigliani nude hammered at $139 million at Sotheby's in New York, short of the $150 million the seller had been hoping for. That lot still sold. In a village hall, a reserve set at the number in your head usually means it does not.

Increment

The increment, or bid step, is how much the price goes up each time somebody bids. Auctioneers do not let bidders choose freely, because a room where people raise by two pounds at a time takes all night.

The working rule is roughly a tenth of the current price, rounded to a number people can say without thinking. A lot at twenty goes up in twos. A lot at two hundred goes up in twenties. A lot at two thousand goes up in two hundreds. The step rises as the price does, so the same lot might move in tens early and fifties later.

Get this wrong in either direction and you feel it. Steps that are too small make the evening drag and the room lose interest. Steps that are too big knock out the person who would have gone one more round. If you are setting them by hand, err slightly small at the start of a lot and slightly larger once two people are clearly committed.

Buyer's premium

The buyer's premium is a percentage the auction house adds on top of the hammer price, paid by the winner. It is how salerooms make their money, and it is why the headline prices in the news are higher than what was actually bid.

Leonardo's Salvator Mundi is the clearest example. The bidding at Christie's in November 2017 stopped at a $400 million hammer. The price everybody quotes is $450.3 million, and the difference is the premium.

Most charity evenings do not charge one, and there is a good argument for keeping it that way: the person bidding is already giving you money, and a surprise surcharge at the payment desk is a poor way to end the night. If you do decide to add a percentage, print it on every lot card and say it out loud at the start. The one thing you cannot do is mention it for the first time in the payment email.

Estimate, opening bid, starting bid

An estimate is the house's published guess at where a lot will land, usually given as a range. It exists to tell bidders roughly what league they are in. Charity auctions rarely publish estimates, and when they do it tends to cap the bidding rather than encourage it, because people read the top of the range as the correct answer.

The opening bid, or starting bid, is where the lot begins. This is the number that matters most on the night, and volunteers almost always set it too high. The instinct is to protect the value of the donation. The effect is silence. Open low enough that three or four people join in, and let the room find the price. That is the entire point of running an auction instead of a fixed-price sale, and it is worked through lot by lot in the organiser's guide.

The rest of the words you will hear

• Lot: one thing being sold, numbered. Two bottles sold together are one lot, not two.
• Underbidder: the person who came second. Worth knowing, because if the winner disappears, the underbidder is who you ring.
• Passed or bought in: the lot did not sell, usually because it did not reach the reserve.
• Absentee or commission bid: a bid left in advance by somebody who cannot attend, executed on their behalf up to a stated maximum.
• Maximum bid or proxy bid: the online version. You enter the most you will pay, and the system bids for you in increments until it is beaten.
• Soft close or extension: if a bid lands in the last seconds, the clock is extended. It stops the lot being won by whoever pressed the button last.
• Provenance: the ownership history of an object. For a donated bicycle, this means a receipt.
• As is, where is: sold in its current condition, with no comeback. Print it on second-hand lots.

Which of these you actually need

For most halls: opening bid, increment, hammer price. That is it. Skip reserves, skip estimates, and think hard before you add a premium.

The rest is worth knowing so that nothing said from the front confuses you, and so you can answer the person who asks. If the mechanics are what you want to see rather than the vocabulary, how an evening actually runs walks through the codes at each lot, the countdown on the big screen and the payment mail that goes out the same night. What the software costs is one flat fee rather than a cut of the hammer price, which keeps the arithmetic on the night down to one number. Anything else, the help pages will have it.