In other words, could the minimum bids be so low that they affect the final selling prices in a negative fashion?
Let’s say …
- Bob is setting up an online auction and has about 100 items for the event valued at about $50 each. Bob takes multiple pictures of all the items and writes good descriptions of each. He sets the minimum opening bid for each item at $0.01 (1 cent.)
- Carl is setting up an online auction and has about 100 items for the event valued at about $50 each. Carl takes multiple pictures of all the items and writes good descriptions of each. He sets the minimum opening bid for each item at $25.00.
Does Bob or Carl realize more for his seller? Good question.
Prevailing theory is that Bob gets more money as the $0.01 “starting bids” garner much more interest, and more bidders generally means more bids and more money. In fact, a Northwestern University study came to this same conclusion: https://mikebrandlyauctioneer.wordpress.com/2010/09/21/low-starting-prices-higher-sale-prices-at-auction/
However, if this auction is not marketed sufficiently, few potential bidders know about the event, and therefore the result could be that in Bob’s auction, items sell for $0.01, $0.10 or the like, where in Carl’s auction, some items might sell for $25 or more, and other items might remain unsold.
Another theory is that the public perceives value by price. In a jewelry store, is a diamond ring priced at $17,000 worth more than another priced at $6,000? Most would conclude the “$17,000 diamond ring” was worth more.
So … a bidder looks at Bob’s auction and sees $0.01 items, and looks at Carl’s auction and sees $25 items? Given this premise that price drives perceived value, Carl’s auction items are perceived to be worth much more than Bob’s.
This same question of a minimum bid being too low could be asked of a live auction. David is beginning to advertise a real property auction to be held live in two weeks. His client has authorized him to advertise a minimum opening bid of his choice (at least $25,000) that David feels will maximize the final selling price.
David feels the property is worth about $75,000. Would David get more money if he advertised the house at a minimum opening bid of $25,000 or $50,000?
Given our first theory, more bidders would result with the $25,000 minimum bid, and therefore likely a higher final selling price. Yet, if we believe that price drives perceived value, would potential bidders sense the property was worth less if advertised at $25,000 than if advertised at $50,000?
Ultimately, it seems to us that selling at auction without any minimum bid at all might be better than a modest minimum bid, as the without reserve format ($0.00 minimum bid) doesn’t suggest any value at all — and asks potential bidders to then research and decide for themselves.
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.