Tags

, , , , , , , , , , ,

I doubt any auctioneer in the United States or otherwise hasn’t at minimum had this thought, and probably most have informed clients of this numerous times: “You can’t start where you want to finish.”

What were talking about here is “Auction 101” in a sense, as this concept is basic to all types of auctions, regardless of type of property, location, time of year, desirability and market conditions.

The concept is simple … let’s say Bill Nolan wants to realize $60,000 for his condominium at auction. He hires Vince Dye, Auctioneer. Bill and Vince agree that since Bill doesn’t want to take any less then $60,000 for his condominium, Vince will conduct a minimum bid auction, with the minimum bid of $60,000 being disclosed to the public.

After five weeks of advertising, including newspaper advertisements, signage, mailers, the local real estate MLS (Multiple Listing Service) as well as his website and many other websites, the day of the auction arrives.

Bill and Vince both arrive about one hour before the auction. 60 minutes pass, and nobody else shows up — not one bidder.

Vince sits with Bill to discuss the situation:

    “Bill, I’ve been an auctioneer for 32 years, and when nobody shows up at a well advertised public auction, there’s only one reason — price. If anyone thought $60,000 was a deal for your condominium, they would have been here. Now, that doesn’t mean that your condominium isn’t worth $60,000; it’s just that … you can’t start where you want to finish.”

Bill asks …

    “So, what do we do now? Are you saying we have to start the bid at an amount lower than $60,000 in order to attract bidders, and then they may bid as much as $60,000?”

Vince replies …

    “Well, that’s the idea, but it’s no guarantee they’ll bid up to $60,000, but it’s a certainty they won’t bid at all if they aren’t here …”

Bill replies …

    “Okay, I understand that, so what exactly do you recommend?”

Vince says …

    “Let’s do this … let’s advertise your condominium for a minimum bid of $40,000. That will attract bidders, and then we’ll have an auction and see where the bidding ends up. I’m willing to bet we can get near $60,000, but there’s no guarantee. What you will know, however, is your condominium will not sell for any less than $40,000.”

Bill and Vince agree to that plan.

After five weeks of advertising, including newspaper advertisements, signage, mailers, the local real estate MLS (Multiple Listing Service) as well as his website and many other websites, the day of the auction arrives.

Bill and Vince both arrive about one hour before the auction. 60 minutes pass, and at the time of the start of the auction, Vince has 9 registered bidders.

Vince begins the auction …

    “Folks, I have to have an opening bid of $40,000.” A bidder raises his bid card indicating he’ll bid $40,000 and the auction is on. The bidding continues $41,000, $42,000, $43,000 … $50,000, $51,000, $52,000, $53,000, $54,000, $55,000, $56,000 $56,500, $57,000, $57,500, $58,000, $58,500, $59,000, $59,500 and finally $60,000. “Sold for $60,000 to bidder number 7!” exclaims Vince.

Bidder number 7 comes up to the registration area to sign further paperwork and Vince asks him how he found out about the auction …

    “Well, that’s interesting, in that my sister lives in this same complex, and called me when your first auction was scheduled — the one with a minimum bid of $60,000. I didn’t come to that one, because I didn’t want to pay $60,000 for this condominium. Yet, I came today because I thought I might get it for $40,000 or $45,000, and ended up paying $60,000 anyway.”

Bill and Vince sat together later that day at Vince’s office …

    “Okay, okay, I see it now,” Bill said. “They can’t bid if they aren’t there, and you can’t start where you want to finish, right?” “Right,” Vince said.

This is a true story.

And this story exhibits another longstanding truth. People attend auctions for one reason: “The prospect of a deal.” We discussed this axiom in great detail here: https://mikebrandlyauctioneer.wordpress.com/2009/12/11/auctions-and-an-iowa-corn-field/

Also, our take on the Northwestern University study regarding lower starting prices realizing higher sale prices can be read here: https://mikebrandlyauctioneer.wordpress.com/2010/09/21/low-starting-prices-higher-sale-prices-at-auction/

It’s probably worth repeating … “You can’t start where you want to finish.”

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 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.