I think I’ve seen almost every rule an auctioneer has for having (and/or not disclosing) the reserve price — including “sellers might or will change their mind,” to “they might not really want to sell …” to “if one item sells for a bunch more then the reserve on the other items …” to “maybe the seller doesn’t want to sell the other items unless the first item exceeds the reserve,” to “nobody bids past the reserve” and so forth.
Here are some other [better] rules: If your reserve is so high you think it’s imprudent to disclose, why are you having that auction? Or, if your reserve is way below market value — then why not disclose it — as that’s great news? Better yet, sell property without reserves and then you won’t need any rules about why you don’t disclose reserves.
How do sellers benefit from an auction? Generally, the more bidders the better. So, how do we attract more bidders? By keeping the reserve a secret? By having reserves at or near market value? By allowing the seller to accept or reject the high bid? Not hardly.
What do bidders appreciate? Honesty and transparency — the chance to get a deal — and a seller who’s committed to selling. Such commitment can be an absolute (without reserve) auction or an auction with a reasonable or low published minimum bid. Quite frankly, any other configuration deters bidders. Thus, your alternative method results in fewer bidders which is why you need the reserve in the first place.
An auctioneer and I were discussing this very issue the other day. “I don’t know how you have all those absolute auctions, Mike … we almost always have to have reserves to protect stuff that isn’t bringing enough.“ I asked him if he had ever tried an absolute auction, as it seemed clear his reserve auctions were forcing him to have more reserve auctions in light of smaller, less competitive bidder pools.
We would argue your auction should be “absolute” either actually or essentially — in that there is actually no minimum nor reserve (absolute/without reserve,) or a published reserve that is materially less than market value and as such essentially absolute. Either of these formats attracts the maximum number of bidders — and we as auctioneers are well to remember we can’t control the price, and rather just the number and correctness of the bidders.
Auctioneers tell me they know how to market and sell property for market value, right? I can be this blunt — a seller with a high reserve or desiring to reserve the right to accept or reject the high bid doesn’t believe in the auction method of marketing. Sellers who don’t believe it should probably sell their property some other way or keep it; auctioneers should avoid these sellers.
For auctioneers tying themselves in knots figuring out why they need to have undisclosed reserves and/or seller confirmation auctions — how about this: market better and give bidders a reason to respond to that advertising thus increasing your crowd (registered bidders) and then you’ll see why you didn’t need that undisclosed reserve nor confirmation auction in the first place.
Lastly, not selling property is just the worst thing — showing the public that “auctions don’t work” and encouraging others to not hire you nor any other auctioneer. Your “no sale” fee might give you some satisfaction, but the loss of future business (for you and your fellow auctioneers) will outweigh any of that short-term compensation. We previously wrote about the worst auction headline: https://mikebrandlyauctioneer.wordpress.com/2020/10/20/the-absolute-worst-auction-headline-unsold/.
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.