Those in the auction business know more about the auction business than those outside of it. For example, while auctions have “urgency” the only important motivation remains the “prospect of a deal.”
For example:
A home is selling at auction in about 48 hours (urgency) but it’s appraised for $675,000 and the minimum bid is $665,000 plus a 10% buyer’s premium.
A home is selling at auction in about 48 hours (urgency) but it’s appraised for $675,000 and the minimum bid is $235,000 plus a 10% buyer’s premium.
#1 above has urgency as a decision must be made in 48 hours, but no prospect of a deal. #2 above has urgency as a decision must be made in 48 hours, and certainly the prospect of a deal. Bidders respond to #2 and don’t respond to #1.
As those in the auction industry well understand, urgency doesn’t drive bidders to participate unless there’s the “prospect of a deal.” There’s little urgency to attend to a bad situation while urgency drives bidders to attend to good situations where there’s the chance of a deal.
Said another way — when there’s the right auction, urgency helps; when there’s the wrong auction, urgency doesn’t at all matter. “Without reserve” auctions have the most prospect of a deal, and thus urgency really matters. Seller confirmation auctions have the least prospect of a deal … so I might not care what the bid deadline is …
We’ve used the lottery as an example before. Let’s say the lottery is up to $500 Million and I have to buy a ticket by 5:00 pm today. Or, the lottery is up to $500 Million and they have the right to reward a winning ticket or not, and the deadline is 5:00 pm today.
Do I have a ticket purchased by 5:00 pm? Sure, if they are awarding the prize, and certainly not if they are only maybe awarding the prize. Does “I am selling” even compare to “I’m maybe selling, and maybe not …?” There’s no comparison.
Suggesting auctions with sometimes no chance of a deal as having urgency is meaningless. Urgency matters when I’m sufficiently induced to participate and then I need (and will respond) to any deadlines. Doesn’t matter if this misguided theory is written, spoken, in a chart, or otherwise — it’s nonsense.
Auctioneers tell me auctions result in market value — and then also tell me they don’t necessarily, so they need to protect their sellers from a potential disaster by conducting “with reserve” auctions. I’ve held this thinking also protects sellers from larger crowds and higher prices.
These anomalist auctioneers could do better and have disclosed academic minimum bid (with reserve) auctions, but they don’t. They typically conduct the worst type of auction for everyone involved — “seller confirmation” — which is nothing more than “I am selling, but maybe not …”
The thought process appears to be to have one “with reserve” auction with the need to bid for the seller or confirm below the reserve, and then think the next one has to be that way too because the next auction’s price might not reach the reserve either.
Next time you hear auctions work because of urgency — think again. Urgency indeed helps when there’s the “prospect of a deal,” but clearly doesn’t matter when there’s not.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at Mike Brandly, Auctioneer, Brandly Real Estate & Auction, and formerly at Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, and an Instructor at the National Auction Association’s Designation Academy and Western College of Auctioneering. He has served as faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.
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