Some auctioneers are telling me that if they disclose the reserve on a property, bidders won’t bid beyond the reserve. I don’t believe it, and nor should you. Bidders bid beyond “the disclosed reserve” all the time. All I can conclude is this misconception or experience may be due to auctioneer malpractice.
For instance, an auctioneer is selling a lot improved with a 2-bedroom home with substantial physical and functional obsolesce. The auction is scheduled and the disclosed reserve is $62,000. So people won’t bid past $62,000? That has to be all it’s worth? That’s flat-out lunacy.
Here’s the issue: The $62,000 disclosed reserve has no context. Is this property really worth $200,000? $62,000? $27,500? The question is, “What’s the actual market value of this property?” That number, along with the disclosed reserve should both be actually (or constructively) disclosed.
Assuming the reserve is about 70% or less than market value, then the correct way to advertise this auction (for example) is: “Appraised for $90,000, minimum bid $62,000.” With context, bidders are aware they can possibly by a $90,000 property for as little as $62,000 … and they bid accordingly.
The other glaring misconception about bidders not bidding beyond any disclosed reserve is that bidders aren’t smart. On the contrary, bidders are smart as there is an immense amount of data available helping them quickly and easily discover various estimates of the value of virtually any property.
We recently wrote about “most sellers and reserve prices” here: https://mikebrandlyauctioneer.wordpress.com/2020/11/09/most-sellers-reserve-prices/. In that treatise, we noted the two best (and only prudent ways) to sell any property at auction is either absolute or a disclosed reserve of no more than 70% of market value. If you’re doing it any other way, it’s time to up your game.
If you’re an auctioneer telling us your bidders don’t bid beyond your stated reserves, your reserves are too high, and/or you’re giving your bidders — or there is no — context. Bidders armed with more information allow them to gauge market value resulting in them bidding near, at, and sometimes in excess of perceived values.
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 and Western College of Auctioneering. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.