Many auctioneers have told me that their favorite type of “with reserve” auction is a seller-confirmation auction — a right to accept or reject the highest bid. As a follow-up, they say firm reserves don’t work as sellers often change their minds when they “see the market.”
The problem with this mistaken thinking is when you don’t disclose a low, reasonable minimum bid at your “with reserve” auction, your bidder pool becomes smaller due to a lack of disclosure. When your seller looks at the number of bidders, the crowd, and/or the highest bid, they aren’t seeing the true market.
Said another way, with “seller confirmation” auctions, the bidder pool is smaller and thus your seller isn’t likely to see as many bidders, nor as large of a crowd, nor the actual highest bid they could have received otherwise. And you’re suggesting they accept your highest bid? It’s essentially malpractice where the auctioneer has provided the client this misinformation and not “reasonable care.”
We previously wrote about this concept here: https://mikebrandlyauctioneer.wordpress.com/2020/11/09/most-sellers-reserve-prices/. We also noted in this article the best ways to maximize price as a result of maximizing the bidder pool: https://mikebrandlyauctioneer.wordpress.com/2018/03/12/what-drives-bidders-to-an-auction/.
There is also the fallacy that bidders won’t bid past a disclosed reserve or minimum bid. This simply isn’t true and this confusion likely stems from published reserves that were far too high, or close to market value: https://mikebrandlyauctioneer.wordpress.com/2020/11/20/bidders-wont-bid-past-disclosed-reserve/.
As we’ve noted many times, maximizing information (full disclosure) tends to maximize the bidder pool, and as such maximizes price: https://mikebrandlyauctioneer.wordpress.com/2020/10/16/providing-as-much-information-as-possible/. Further, if you really want to maximize price, absolute auctions truly maximize the bidder pool: https://mikebrandlyauctioneer.wordpress.com/2016/08/25/the-power-of-the-word-absolute/.
If you remain unconvinced, what drives bidders to any auction? Many years ago we identified these four words, the — prospect of a deal — which are necessary for any auction to succeed: https://mikebrandlyauctioneer.wordpress.com/2009/12/11/auctions-and-an-iowa-corn-field/. It’s even more true today with the myriad of other buying choices bidders have at their fingertips.
Many auctioneers know you can’t “start where you want to finish” and as such, getting the bidders engaged is paramount. As a bidder, if I see the seller can ultimately turn down my offer no matter, it does little to get me to participate as there is essentially (or actually) no prospect of a deal.
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 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 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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