Some auctioneers have “with reserve” auctions and as such allow the seller to confirm the high bid — accepting it or rejecting it. In an auction such as this, there could be a number the seller has in mind, but it’s kept secret from the bidders until the high bid is established.
Alternately, the seller might not have any particular number in mind, but this is largely secret from the bidders as well as they typically don’t know if the seller has established a particular number or not. Of course, some sellers disclose their lowest acceptable bid (as such, not a seller confirmation auction) so it’s no longer a secret to the bidders.
We wrote about all the “with reserve” choices here, including the above: https://mikebrandlyauctioneer.wordpress.com/2011/03/26/with-reserve-auction-choices/. As we wrote, sellers could also bid and even simply withdraw the property before, “Sold!” Other than disclosing the right to bid, the whole essence of a “with reserve” auction is we’re keeping secrets from you.
In fact, sellers in “with reserve” auctions can reserve all kinds of things and even refuse a higher bid if they choose — as this type of auction makes no promise to sell to the highest bidder. Too, a seller could have both a confidential reserve and bid as the seller, for example.
Overall, “with reserve” auctions make no promise to sell the property at all. On the contrary, “without reserve” auctions make a promise to sell to the high bidder (other than if there’s no calling for bids or once bidding is open, no bid is made within a reasonable time — where the property may be withdrawn.)
Why do bidders not like “with reserve” auctions? It might actually be because there are secrets kept from them, and study after study shows bidders prefer more disclosure, not less. In fact, many auctioneers report better results with fewer secrets.
For those unfamiliar with the word, “secret” here’s a general definition: “Not seen or known (or not meant to be seen or known) by others.” It doesn’t mean nobody knows it, but rather that generally speaking someone knows it, and others don’t. In this context, the seller knows something that the bidders don’t.
As I answered a pugnacious questioner the other day: “If it’s a secret reserve, how do you know there’s a reserve, and therefore if it’s a secret, how would it discourage bidding?” I know there’s a reserve (amount and/or right) but the reserve itself is secret to me, and thus I’m discouraged from bidding — I don’t know what criteria the seller is using to decide to sell or 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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