When I attended auction school I was told two things I’ve repeated my entire life thereafter to other auctioneers. In fact, I’ve heard tens of thousands of auctioneers proclaim these two things as facts:
Auctions produce “market value.”
It is only worth (the most) someone (anyone) is willing to pay for it.
Auctioneers tell me that these two statements are true, and also tell me that both these statements are false. In other words, we have auctioneers claiming auctions result in full price discovery (market value) but not necessarily — at the same time.
The auctioneers who truly believe these two statements hold absolute auctions or with reserve auctions with academic starting (minimum) bids believing both that auctions produce market value and property is only worth the most someone — anyone is willing to pay for it.
The auctioneers who actually don’t believe either of these statements hold “with reserve” auctions with confidential reserves and/or seller confirmation of the final price — in the event the auction doesn’t produce market value and/or they believe it’s worth more than what someone — anyone is willing to pay for it.
Of course marketing matters — in that a auction that’s not marketed properly may not result in market value. So, auctioneers place newspaper ads, post on social media, put up signs, send direct mail and emails, etc. Given that, would you also agree that the marketing message matters?
We believe the marketing and the message matters — in that if I market that I’m selling a $500,000 property with a minimum bid of $500,000 or a confidential reserve, the marketing itself may be outstanding, but the message is not. Of course, if this $500,000 property was put up absolute or with a published minimum bid of $250,000, bidders would obviously react.
Both absolute and “with reserve” auctions have urgency — and urgency is a characteristic that does not drive any bidders to an auction. What does drive bidders to auctions is the proper inducement to participate — without such, result in less than optimum results. Urgency on the other hand helps once the bidder is engaged.
Indeed both types of auctions have risks, in that an absolute auction may not result in a price the seller feels is sufficient, and “with reserve” auctions (with confidential reserves and/or seller confirmation) may not result in sufficient bidders coupled with a price the seller feels is insufficient. It’s important to understand the complete picture.
We have said for years and years, that bidders can’t (won’t) bid if they don’t become engaged with the auction. Bidders respond to the “prospect of a deal” (absolute, disclosed academic reserve.) Once they are engaged, the seller receives market value — because we believe at that point, it’s truly only worth the amount that the high bidder bids.
Maybe the issue for some auctioneers is their seller isn’t willing to (or can’t) deal with reality. Sellers who aren’t willing or able to accept market value aren’t good auction candidates. So of course your auction didn’t likely solve their problem since … auctions produce (only) market value, right?
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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