I have consistently held that auction bidders respond to the “prospect of a deal” and that all you need is this, and adequate marketing, and everything will work out. Yet, how do we project this prospect of a deal with a “with reserve” auction?
This can be done — and we have written about such here: https://mikebrandlyauctioneer.wordpress.com/2018/03/12/what-drives-bidders-to-an-auction/. We used $100 bills to demonstrate this principle.
Yet, what if your subject lots aren’t $100 bills in the sense your seller thinks this “lot” is worth $1,000 so your starting bid will be maybe $600. Certainly, someone would pay $600 for a $1,000 lot, right? However, the question remains who thinks this lot is actually worth $1,000?
If the seller thinks this lot is worth $1,000 and it is, then this $600 starting minimum bid is acceptable. Yet, what if the bidders believe this same lot to be worth only $700, then this $600 starting minimum bid is not acceptable.
If your auction didn’t work out well, we’ve noted it almost assuredly lacked the “prospect of a deal” and/or adequate marketing. Yet, if it appears to you that both requirements were satisfied, maybe your prospect of a deal was based on the wrong numbers?
An auctioneer told me he had both the “prospect of a deal” and adequate marketing but nobody bid. I suggested that was highly unlikely … and soon realized why there were no bids. He had taken his seller’s opinion of value to determine the inducement-proper minimum bid.
In our conversation with this auctioneer, the seller thought his lot was worth $300,000 so a $180,000 minimum bid would be sufficiently lower — when in fact this supposed $300,000 lot was actually worth (in the bidders’ opinions) about $190,000, which then tells us an opening bid of $180,000 isn’t sufficiently lower.
The key to a “prospect of a deal” is that the minimum bid needs to be academic in relation to the true market value, and not just what the seller believes the value to be. Or, if you are selling absolute (with a -0- minimum bid) then you can almost assuredly expect robust bidding as long as the lot has a value greater than -0-.
Finally, if you are an auctioneer who believes that property is only worth what someone’s willing to pay for it, and auctions produce market value, then why are you selling with reserve at all? Why are you not selling absolute? https://mikebrandlyauctioneer.wordpress.com/2024/02/29/you-believe-it-then-you-dont/.
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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