TYPES OF AUCTION
There are two basic types of auctions. Absolute Auction and Reserve Auction. There are several distinct differences and benefits of the two and even a few common variations. The decision of which type of auction will best serve your seller depends on many factors that only your seller can answer.
An absolute auction is sold to the highest bidder regardless of the amount of the winning bid. Once an auctioneer has asked for bids and received one, that item cannot be withdrawn. The seller nor anyone acting on his behalf is allowed to bid with very few lawful exceptions. Absolute auctions typically attract more buyers because they know the property is definitely going to sell on auction day. Selling a property absolute encourages every potential buyer to react and participate within the seller’s timeline and will produce “fair market value” for their property.
A reserve auction is offered with a minimum price the seller is willing to accept for the property. Most often this price is not published or disclosed to the public. Sellers are not obligated to accept any price lower than the pre-determined reserve price. While reserve auctions are less exciting for buyers as there is no guarantee the reserve will be met on auction day, sellers often do not have the capability to sell a property absolute as they may have outstanding debts or mortgages to pay off after the sale. In this case, reserves should be set as low as possible as the seller’s bottom line and should be established and signed off on upon the signing of the auction sales contract. If the highest bid is less than the reserve, the auction company can try to negotiate the deal with the highest bidder after the event.
A minimum opening bid or minimum published bid auction is advertised to be sold absolute with an advertised minimum starting bid. In this type of auction the lowest acceptable price is pre-determined by the seller and the auction firm. The minimum price is then stated on all the marketing materials. When the bidding reaches the minimum amount, the property will sell. The advantages of this auction is that it lets buyers know what the minimum price the seller is willing to take for the property, and it still creates a safety net for the seller.
A recommended starting bid auction is advertised with a minimum starting bid. In this format, the property does not say it is being sold “absolute” so it may have an undisclosed reserve price that it will need to meet before it is able to be sold.