Stephen has lived in New York City all his life. He managed a large investment fund, and earned about $500,000 a year … until his divorce and a turn in the market.
As a result, Stephen called his longtime auctioneer friend Freddie Marshall. Since Stephen and his wife Kayla couldn’t agree about the division of personal property, Stephen asked Freddie to sell it all at auction.
Freddie suggested an absolute auction, where everything would sell without reserve, nor any minimum bid. Stephen and Kayla agreed and the auction was scheduled.
However, Kayla consented that Stephen could keep his limited edition Rolls Royce Silver Shadow automobile. The couple agreed that Kayla would be credited for $150,000 to balance the automobile allocation.
The auction went well — totaling far over their expectations — providing Stephen with $42,500 and Kayla $192,500.
Four years later, almost to the day, Stephen found himself in severe financial difficulty. His investment firm had closed and he hadn’t worked for over six months. He owed $120,000 to the bank and his only real asset was his prized Rolls Royce Silver Shadow automobile, which he owned free and clear.
Stephen called Freddie Marshall and ask about selling his car at auction. Freddie replied, “Sure.” and added, “We should sell it absolute to maximize price. You remember how well your first auction went?”
“I do remember, and that’s why I’m calling you.” replied Stephen. But, Stephen wondered if he should sell his car absolute … What if something happened? What if the crowd that day, at that time, wasn’t interested in his car? What if it didn’t demand enough to pay his other obligations? What if …
Stephen thought that if he didn’t owe the bank anything, selling it absolute would be prudent. However, if the car brought any significant amount less than $120,000, he would experience severe hardship.
And thus our question today, posed some time ago by Carl Carter: Should you go absolute with one very expensive asset where a disaster would bring financial ruin or severe hardship on the seller?
In the spirit of disclosure, I may be the biggest proponent of selling at absolute auction on the planet. Despite us conducting exclusively 1,000’s of absolute personal property auctions over 30 years — in other cases, specifically real property cases, we’ve accepted court assignments such as a home selling for “no less than 2/3 of the appraised value” (a with reserve auction.)
In looking at Stephen’s situation in that light, one might ask if severe hardship could (or should) be considered a lien? Or, more accurately an encumbrance against this Rolls Royce automobile? It’s not that there is actually a lien, but if it doesn’t demand enough …
Maybe we’ve answered the question? Rather, we answered one question, but one more important question remains.
Stephen’s choices are not only to sell at absolute auction OR sell at a with reserve auction. He can choose to not sell at auction at all, and maybe advertise the car for sale himself. Is that a better choice?
It seems to me that for an auction to work, regardless of specific circumstances, the subject property has to be selling absolute or essentially absolute. In other words, Stephen could authorize Freddie to sell this car at auction with no minimum at all, or maybe a minimum which would be considered immaterial — like $50,000 — which would beg the question, “Why not absolute?”
If Stephen needs no less than $120,000 (plus commissions) and the car is worth $150,000 more or less, then the better question is: Should Stephen utilize auction marketing at all? In this latter case, I submit he should not.
The key seller feature auctioneers should endeavor to find is equity. This equity can be financial in nature where it is easy to calculate, or it can be in terms of hardship (or regret,) where it may be more difficult to characterize.
Sellers with no financial equity, or no hardship equity, should probably not sell at auction. This premise is true because auctions produce market value, and market value may or may not be more than what is owed, or what is needed to avoid hardship — or regret.
The choice really isn’t selling absolute or not — as much as it is selling at auction or not.
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 serves as Adjunct Faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.
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