I believe that most auctioneers understand what drives interest in an auction and/or auction event — other than wanting or needing what is being put up for sale … I have offered for decades that it is the, “prospect of a deal;” in other words, a chance — but not a guarantee — to get a deal.
Here’s our original treatise from 2009 on this subject where we visit Iowa: https://mikebrandlyauctioneer.wordpress.com/2009/12/11/auctions-and-an-iowa-corn-field/
We regularly use a $100 bill as shown above to talk about this issue with prospective clients, as we learned from Gloria ‘Lynn’ Gardner who was with Virginia-based Long & Foster Real Estate at the time (about 1992); she’s sold nearly 5,000 properties at auction in her career.
I began selling real estate at auction in 1991 for HER Realtors. In 1995, while remodeling our program replicating Lynn’s, I was soon after appointed Corporate Auctioneer for HER Realtors and we sold over 2,000 properties at auction thereafter throughout Ohio.
Let’s look here at several different scenarios where we are selling this $100 bill at auction, considering how the typical bidder/buyer would react:
- This $100 bill is being sold subject to seller confirmation. This is a with reserve auction with no particular reserve established nor disclosed.
- This $100 bill is being sold with an seller-established reserve price. This is a with reserve auction but the reserve is not being disclosed to the bidders/buyers.
- This $100 bill is being sold with a published minimum bid of $96. This is a with reserve auction, but the seller has agreed to sell if the bid is $96 or more.
- This $100 bill is being sold with a published minimum bid of $38. This is a with reserve auction, but the seller has agreed to sell if the bid is $38 or more.
- This $100 bill is being sold absolute (without reserve) and thus is being sold to the highest bidder regardless of the final bid price.
In fact, I’ve discussed, witnessed and listened to thousands of other auctioneers who have affirmed … that #5 would attract the most bidders, and #1 would likely attract the least.
In essence, as an auctioneer/seller moves from #1 to #2 to #3 to #4 to #5 the crowd size (bidder pool) increases exponentially. However, move from #5 to #4 to #3 to #2 to #1 and crowd size decreases exponentially.
One could argue that #4 and #5 are not materially different as anyone would pay $38 for a $100 bill, right? One could also argue that #1, #2 and #3 are not substantially different, as the minimum required from the seller is probably near $100 in all three cases — and if it isn’t, why isn’t the auctioneer/seller disclosing it?
We are suggesting generally, if not affirmatively, that higher prices are realized with larger bidder pools. Further, I know of no auctioneer who hopes for a smaller crowd over a larger one, nor do I see lower prices correlated with a larger number of bidders — even though it only takes the right two.
Lastly, if you believe this is unreliable and/or unscientific, then were are you seeing on a consistent basis prominent auctioneers advertising “With reserve” or “Subject to seller confirmation” in large print at the top of the advertisement, as contrasted with “Absolute auction” or “Selling regardless of price” in large print at the top of those auction advertisements …?
Said another way … is it auctioneers complaining somewhat frequently that other auctioneers are advertising their absolute auctions as with reserve auctions, or the other way around?
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, an Instructor at the National Auctioneers Association’s Designation Academy and Texas Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.