A couple is retiring and moving from Vermont to Florida. They are selling their Vermont waterfront home at auction. They hire a local auctioneer and want the highest possible bid even if that bid comes in more than “market value” … or do they?
Of course, we’ve written prior about the Supreme Court of Ohio and largely every auctioneer on earth concluding that the highest bids at auction equaling value: https://mikebrandlyauctioneer.wordpress.com/2015/09/07/does-an-auction-price-equal-market-value/. So could a high bid exceed value?
Let’s look closer at our Vermont couple. They want all they can possibly get for their home, but if the home is “commonly valued” at $1,400,000 and the high bid — “privately valued” — is $1,750,000, will the buyer be able to get financing? Will he be able to close?
Further, where will the appraisal come in? Will the buyer have enough money to make up the deficiency between the sale price and loan amount? Let’s say the deal falls through and there is a subsequent auction — where bidders now bid less — say $1,325,000 — to avoid the same fate endeavoring to steer clear from the “winner’s curse.”
Common values are interconnected with the market — involving financing, resale, etc. Private values involve buyers solely. If our Vermont high bidder was paying cash and intended to live there (private value) — he can pay $1,750,000 or whatever, no matter. If he’s looking for financing or quick resale (common value) then he cannot.
We wrote more detail about the winner’s curse here: https://mikebrandlyauctioneer.wordpress.com/2020/10/14/the-winners-curse/. In that treatise, we noted (and note here again) concerning bid strategies and the winner’s curse:
Can you avoid the winner’s curse? First, work to find out absolutely as much as you can about the subject property.
- If you want the property and it’s entirely your decision — bid whatever you wish to obtain it (private/emotional valuation.)
- If you wish to buy and require financing to support your purchase or wish to eventually resell, bid to purchase at or below what you think it’s worth in the market (cognitive/common valuation.)
So, can there be high bids at auction in excess of market value? Depends upon what you consider the “market” — the private/emotional valuation so-called market or the cognitive/common valuation market.
Mike Brandly, Auctioneer, CAI, CAS, 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, Executive Director of The Ohio Auction School, and an Instructor at the National Auctioneers Association’s Designation Academy He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.