Auctioneers tell me that they had a “seller confirmation” auction and the seller had a “secret reserve” and the auction didn’t reach that reserve (which isn’t really surprising) but the seller accepted the lower bid given the marketing.
With a full understanding (knowledge and consent), this is fine. Besides that, the seller may not have completely understood, but my question remains: Did this auctioneer maximize the seller’s position? My contention is that the seller’s position was not maximized.
To maximize any seller’s proceeds (or position otherwise) the auctioneer has to maximize the number of bidders while attracting within that group the “right” bidders. The right bidders are the bidders the most interested, and the next-most interested of all (alpha and beta.)
We have written about alpha and beta more than once, including most recently here: https://mikebrandlyauctioneer.wordpress.com/2021/12/03/auctions-and-the-chances-of-alpha-and-beta-etc-2/. Any auction only needs alpha and beta, but the more “other” bidders participating make alpha and beta feel better about their bidding.
Your “seller confirmation” auction with a secret (non-disclosed) reserve attracts fewer bidders than an absolute auction or one with an aggressive minimum acceptable bid. So, when there are fewer bidders, and the bid comes in less than the secret reserve — that should probably be expected.
But the seller sees this lower-than-the-secret reserve high bid and says, “Well, considering all the marketing, I’ll accept it.” We ask if the seller truly benefited from this process. Not really. “All this marketing” advertised a “secret reserve” and “the seller might or might not accept your offer” so the bidder pool was definitely not maximized.
On the contrary, if the auction was absolute (-0- minimum bid) or with reserve with an aggressive acceptable opening bid, the bidder pool would be maximized, as the seller’s position would also be. More bidders = better for the seller. The right bidders = better for the seller.
If a seller wants to analyze auctioneer marketing prowess, it’s not just the marketing itself, but as importantly what’s being advertised. If I’m advertising the seller won’t disclose the reserve and/or the seller may or may not accept any price — it doesn’t matter how much this dreadful news is disseminated — it’s terrible news.
Bidders don’t respond to terrible news and rather respond to the “prospect of a deal” providing maximum disclosure, and a genuine intent to sell (for whatever, or at or above the minimum bid.) Therefore, sellers analyzing smaller bidder pools and deciding that market value was reached are being misinformed and leaving money on the table.
This isn’t the first time we’ve written about sellers not “seeing the market” and making poor decisions. It also may not be the last time we talk about this, given the severity of these decisions and considerable misinformation. https://mikebrandlyauctioneer.wordpress.com/2022/06/27/your-seller-seeing-the-market/.
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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