I read that “most sellers” are not going to stick to a reserve price — in other words, a seller will say he needs at least $775,000 but if the auction ends with a high bid of $721,000, the seller will likely take it. In other words, all they need to see is the auctioneer’s good effort and they will agree to the high bid regardless.
Really? Most sellers? The vast majority of auctioneers across the United States report that most sellers know exactly the least they can take for their [real] property due to knowing exactly what they owe on it, and other closing costs and needed net-to-seller proceeds associated with the transfer. Even if they don’t know this number, the auctioneer should know it.
Further, these sellers know that they either don’t have any cash to bring to closing — or don’t wish to bring cash to closing — so their minimum is essentially fixed. In other words, in our prior example, $775,000 is the number and they aren’t going to accept less ($721,000) just because of an auctioneer’s brilliant marketing.
Let’s ask another question … is this [real] property worth $775,000? If so, why didn’t the auction realize that price or more? Is the property worth only $721,000? If so, why did the auctioneer have an auction with a minimum bid or undisclosed reserve of $54,000 over the market? Either constitutes clear malpractice.
As we have discussed with 1,000’s of auctioneers around the United States, auctions realize more for the seller [the most for the seller] when a property is sold absolute or with a minimum published bid of [about] 70% or less of market value. This is true because either method maximizes the bidder pool, which then maximizes price.
Here’s another issue with a $775,000 published minimum bid auction — another interested bidder thinking he can only pay $750,000 (for example) won’t show up since the minimum is in excess of his maximum. Further, bidders learn the published minimum bids are not reliable and that they can’t trust the auctioneer’s advertising.
“That’s why we don’t publish the minimum bid nor reserve” is typically the retort; except what do bidders want to know when something is being sold at auction? “Is it selling to the highest bidder?” and/or “What is the least the seller’s willing to accept?” With an unpublished (undisclosed) reserve the answers are “No” and “I can’t/won’t tell you.” Good luck maximizing the number of bidders with that plan.
As we’ve said before, if the seller can sell absolute, then that’s clearly the best option. If the seller needs a minimum bid of 70% (or less) of market value then conduct a published minimum bid auction. If the seller wants more than market value or wants to conceal the reserve price, maybe an auction is not the best choice and possibly he should market his property in a traditional listing model — or not put the property on the market at all?
Finally, if you as an auctioneer are advertising an “opening bid” or “nominal opening bid” that isn’t the actual “minimum bid” the seller is willing to accept, you are misrepresenting the auction and deceiving bidders who would obviously consider your “opening bid” as an actual “minimum bid.” As such, you can and should do better.
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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