In our article about tag (estate) sales, we noted that at an auction, everything sells for market value. We made this statement without any qualification. In other words, Auction price = market value.
We ask here, “Does anything sell at auction for less than market value?” Would it be possible for anything sold at an auction to be sold below market value? Can people buy things at auction, and then later sell for a profit, and that ultimate selling price be considered market value?
First, let’s define “market value.”Market value is the highest price at which a buyer and seller agree to exchange personal or real property for like valuable consideration at a certain moment in time. It is generally assumed that the personal or real property item is exposed for a reasonable amount of time to the marketplace, and both the buyer and seller are reasonably informed about the subject property, neither being under a compulsion to buy or sell, and neither buying or selling for any other reasons constituting an extraneous influence on the transaction (for example, not offering $100,000 more for grandmother’s home in order to help her pay her bills, even thought comparable homes in the area are available for $100,000 less).
Now that we have our definition, does an auction satisfy the definition of market value?1. A buyer and seller agree to exchange property for valuable consideration2. The highest price offered is considered the sales price3. The transaction takes place at a moment in time4. The property is generally exposed for a reasonable time prior to the auction5. The buyer and seller are typically reasonable informed about the property6. Neither buyer or seller are under a compulsion to buy or sell (except for forced sales)7. Neither buyer or seller act based upon some extraneous influence (typically)
It would appear from this list that most auctions satisfy the definition of market value.
However, we did note that a “forced sale” would not qualify, such as a foreclosure, since the seller is forced to sell via default terms and/or judicial decree. Too, regarding extraneous influences, sometimes family members bid against each other out of spite, and prices are inflated accordingly, or bidders collude efforts and don’t bid against each other by agreement, thus deflating prices.
Therefore, to say that all auctions result in market value would be an overstatement. However, to suggest that well publicized auctions of personal and real property with willing buyers and sellers, lacking extraneous influences, does result in market value.
This does lead to what most of the general public knows already. People buy at foreclosure auctions, storage lien auctions, car repossession auctions, and the like in order to sell later for a profit. In many cases, these purchases are turned around and sold in a non-forced sale auction where profits are regularly realized — and of course, per our definition, market value is obtained.
Even in non-forced sale auctions where bidders bid without any extraneous influences, some think that property sells for less than market value. For instance, at many auctions, onlookers will note such things as “Boy, that sold cheap … ” or “Wow, they really got a deal on that …” The question is, if it was such a good deal, why didn’t the onlooker buy it? The answer is usually, “Well, I really didn’t want it …” or “I had no use for that …” and that well could have been the same reason nobody else bid any higher. In other words, despite appearances to some onlookers, market value was indeed obtained.
Does anything sell at auction for less than market value? So long as it’s not a forced sale, and nobody bids with extraneous influences, then no — nothing sells for less than market value.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.
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