As we discussed in Different Types of Auctions, auctioneers and their clients have the choice between with reserve and without reserve auctions.
In the without reserve auction format:
- Item must sell if there is a bid within a reasonable time after item is offered
- The seller, nor someone else upon the seller’s behalf may bid (Seller may bid in a forced sale situation, such as foreclosure or repossession)
We’ll discuss here the reasons an auctioneer might prefer to conduct a “without reserve” auction, rather than a “with reserve” auction.
We have tracked six (6) different reasons why without reserve auctions are held. We’ll detail each with an example and/or further clarification.
In the without reserve auction, the item is essentially guaranteed to sell, unless no bid at all is made on the item within a reasonable time after the item is offered to the audience. Since the item is essentially guaranteed to sell, the auctioneer is equally guaranteed his commission.
Taking seller out of the process
In the without reserve auction, the seller is prohibited from bidding, and otherwise prohibited from withdrawing the item in any fashion once a bid is made, other than in cases of a forced sale. This allows the auctioneer to take the seller out of the process once the item is opened for bidding.
Larger number of bidders
It is fair to say that what drives bidders to any auction is the “prospect of a deal,” as we discussed in our blog titled Auctions and an Iowa Corn Field. A without reserve auction maximizes the prospect of a deal, as no item may have any minimum bid nor the right for the seller to decline any bid — so the item could sell for 1 cent in theory. Many more people respond to this opportunity than do people respond to auctions with minimum bids or seller confirmations.
What follows, typically, from there being a larger number of bidders, is more bidding, which results in higher prices. Price is proportional to demand when supply is fixed, and the more demand (bidders) the higher the prices.
Auctioneers who attract larger crowds, and obtain higher prices for their clients attract more future business. Potential clients who see an auctioneer obtaining higher prices are likely to hire that auctioneer, over another who isn’t obtaining these same higher prices.
Full price discovery
In a without reserve auction, the true value of an item is realized without any regard to prior expectations, appraisals, original cost, etc. This is known as “full price discovery” in that without these extraneous issues, interested buyers, alone, determine the price of the item, and the value of that same item at that very moment. With a minimum bid or right of seller to confirm the final price, the final bid price is not fully discovered.
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 is Executive Director of The Ohio Auction School.