We’ve sold a bunch of real property (real estate) at auction. One thing is obvious — other than selling “absolute” to the highest bidder — disclosing a modest, acceptable reserve is in the seller’s interest.
For example, selling a $500,000 home at auction, absolute, or with a published minimum bid of (something like) $290,000 is best. Selling it with “seller confirmation” is not the best. Withholding this information causes bidders to sense no “prospect of a deal” which is essential to maximize the seller’s position.
Here’s a counter-statement with a completely illogical conclusion:
Rather, make the sale “subject to owner confirmation.” He said his company never publishes reserves, because it can negatively affect the outcome of the auction.
Indeed, if the reserve is too high ($500,000 property with $499,999 reserve) that shouldn’t be disclosed — and better yet, this seller should choose to sell through private negotiation, and not at auction. Auctions require a prospect of a deal, which this auction doesn’t have.
Some auctioneers believe that if the reserve is published — no bidder will bid beyond that. This is absolute nonsense as we noted here: https://mikebrandlyauctioneer.wordpress.com/2020/11/20/bidders-wont-bid-past-disclosed-reserve/.
There are two principles at play here. At an auction, “You can’t start where you want to finish” and “With more disclosure, more bidders participate, and bid higher.” Reasonable (academic) published reserves induce bidders to participate, and without the proper inducement, bidders tend to not engage.
If you don’t believe me … think of a state lottery. The lottery has a $1,000,000 prize — you buy a ticket? The lottery has a $100,000,000 prize — you buy a ticket? The lottery has an “undisclosed” prize (which may or may not be awarded) — you buy a ticket?
These known facts aren’t unique to real property. Personal property auctions require the same inducements (absolute or academic minimum bids) to maximize the seller’s position. Again, you can’t start where you want to finish, and more disclosure helps the seller.
Any auctioneer’s job is to maximize the bidder pool. With more bidders, prices are higher. Hiding key information tends to discourage bidders, which lessens participation. With fewer bidders, sellers don’t realize market value.
Finally, for those auctioneers telling everyone they have to have the “right to reject the high bid” because at their last “seller confirmation” the auction didn’t have enough of the right bidders — the cause is clear with the wrong proposition: https://mikebrandlyauctioneer.wordpress.com/2023/05/17/reserve-auction-needs-reserves/.
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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