Lots of auctioneers recently have been discussing (and sharing) an article exploring why “Wealthy people” choose to sell their “Multimillion-dollar” homes at auction rather than list them.
Sure … many of these homes are unique and difficult to price (value,) and buyers have the same problem with determining worth. Additionally, many of these auctions are no reserve so buyers are drawn in on the “prospect of a deal.”
However, are they really selling no reserve? Are they really selling without reserve? Absolute to the highest bidder? I would offer many of these no reserve auctions which attract the most attention really are not … no reserve.
As James Tarmy noted in his article about this subject, these auction companies often have “a few tricks up [their] sleeve[s].” They are saying the property is selling without any reserve, but it is selling with a reserve — if not enough people show up and/or those who show up don’t provide sufficiently high opening bids, the auctioneer cancels the auction.
I would argue that certainly if nobody showed up, or only a few bidders showed up, it is wise to cancel the absolute auction. But, to require bidders to place pre-bids in order to gauge interest and then cancel if those bids aren’t high enough crosses the line.
A “no reserve” auction is an absolute auction, isn’t it? What is an absolute auction? An absolute auction is “The genuine intent to transfer to the highest bidder regardless of price.” We discussed that more here: https://mikebrandlyauctioneer.wordpress.com/2015/11/27/genuine-intent-to-transfer-to-the-highest-bidder-regardless-of-price/
Instead of “The genuine intent to transfer to the highest bidder regardless of price.” this is more “The intent to transfer to the highest bidder so long as we have a sufficient starting bid.” This latter definition is a “with reserve” auction.
Mr. Tarmy says as much in his article. He notes that these auction companies “solicit pre-bids, effectively establishing a reserve price ahead of the auction.” Thus, by establishing a reserve, it’s hardly a no reserve auction … rather, it’s an auction with a particular reserve.
“Intent” is the issue here. Does the seller really intend to sell to the highest bidder regardless of price? The seller would rightly expect an appropriate (sufficient) number of bidders, but to require a particular pre-bid demonstrates he really doesn’t intend to sell to the highest bidder regardless of price because his intent depends upon a certain price.
There are “with reserve” and “without reserve” auctions (read more here: https://mikebrandlyauctioneer.wordpress.com/2009/11/15/different-types-of-auctions/) — no other types. Certainly auctioneers may ask bidders to place so-called pre-bids to be used as criteria for proceeding [or not] with the auction, but such an auction should be considered with reserve, and not marketed otherwise.
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, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.