We’ve not only written about how auctions are collaborative in nature, but that auctioneers and sellers really only need the highest bidder (alpha) and the next highest bidder (beta) to arrive at market value: https://mikebrandlyauctioneer.wordpress.com/2019/04/22/auctions-and-the-chances-of-alpha-and-beta-etc/.
Generally, in a without reserve auction, alpha and beta are neither the seller and in a with reserve auction, alpha or beta could be the seller or the seller’s agent. Exceptions include forced sales where anyone can bid regardless of with or without reserve.
The auction definition of “market value” is the highest bid, which is one more bid than the second-highest bid. Thus, these two bidders collaborate to establish the winning bid. The highest bidder doesn’t necessarily bid the most he’s willing to pay, and rather is forced (chooses) to bid one more bid than the underbidder.
This underbidder — given he doesn’t bid again — is typically deemed to have bid at his maximum, or possibly just below his maximum, with the most he will pay (or more) being already bid by the highest bidder. For example, if A bids $500 and B bids $600 and there is no further bidding, it’s presumed A doesn’t think the subject item is worth any more than $600.
As such, bidders work “together” to determine whatever sells at auction. If you as an auctioneer are viewing this establishment of price (open price discovery) at auction in some other way, maybe you aren’t selling at auction? Simply speaking, bidders make offers at an amount in excess of what the just prior bidder offered.
Further, a bidder may think a subject property is only worth $500 but if it sells for $600 he then typically (at least someone) thinks it’s worth $600. There’s a “consensus” of value that determines not only the highest bid, but the view that the subject property is really worth that highest bid — and possibly no more.
Related to this collaborative transaction, we need to remember to have the same terms and conditions for all bidders so that the only deciding factor for the auctioneer/seller is the highest price. Some say it’s best to treat bidders arbitrarily and capriciously in regard to terms, but we counter it’s an absolutely ridiculous idea.
Just as there is collaboration, there is the related lack of collaboration. For instance, a bidder bids and then retracts his bid, which state law allows (and should allow.) When a high bidder retracts his bid, the only bidder(s) left are the remaining bidders, who then can result in a new high bid — or not.
We wrote about online bid retraction, and how that is different than in a live auction: https://mikebrandlyauctioneer.wordpress.com/2021/05/10/online-bidder-retraction-mechanics/. As we discussed, the resulting new high bid should be arrived at without any consideration for the previous high bidder’s bids, and of course with that new bidder’s knowledge and consent.
In summary, it’s our view that taking bids and/or dealing with bidder retractions are all part of a collaborative effort and both combined end up providing a consensus of value at auction. The more auctioneers take bids in a fair, honest, reasonable fashion, and the more auctioneers deal with any bid retractions in a fair, honest, reasonable fashion, the better our industry will be.
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, RES Auction Services, and 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 Auctioneers Association’s Designation Academy and Western College of Auctioneering. He is 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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