There are dozens of academic research papers (and maybe not many more) concerning with reserve auctions versus without reserve (absolute) auctions. I think over the last 11 years or so, I’ve read every one of them — as they aren’t difficult to find on the Internet.
Basically, it’s fair to say that some claim absolute auctions produce better results for the seller and others conclude the exact opposite. Some say bidders are drawn to events where a bunch of other bidders are present, and others say bidders are deterred by large bidder pools. In other words, there is only a limited amount of consensus.
However, there are some overriding research results which can’t be denied. For instance, we’ve found that most (but not all) researchers discovered the following four general conclusions:
- Without reserve (absolute) auctions attract more bidders, and more interest in the auction.
- With reserve auctions produce far more no-sales, but can result in higher prices on select lots.
- Disclosed reserves result in more bidders as contrasted with undisclosed reserves which tend to deter bidders.
- Educated buyers typically disregard seller reserves as reliable where uneducated buyers may use seller reserves to gauge value.
Let’s take these one at a time.
- Without reserve (absolute) auctions are the most frictionless in regard to a bidder thinking “I can attend that event and possibly buy that property.” Generally, the more bidders — the more active, interested bidders — the more bids — and higher prices are obtained. Yet, the highest price is actually only one bid more than the second-highest bidder’s highest bid.
- With reserve auctions with high or unrealistic reserves often result in no-sales. With reserve auctions with reasonable or aggressive reserves often result in sales. Too, a with reserve auction with the seller (or auctioneer for the seller) bidding, there is one more very interested active bidder (although likely less total bidders) — and as we’ve said, with more active interested bidders, higher prices can be reached.
- Bidders are drawn to auctions with increased disclosure, and generally deterred from auctions with less disclosure. A reasonable or aggressive disclosed reserve attracts bidders, and a high or unrealistic disclosed reserve deters bidders.
- As time passes, buyers are becoming more and more educated about values primarily due to the widespread availability of data on the Internet. As such, seller reserves continue to be increasingly disregarded as dependable.
There are also some other “rules” in the auction business which are difficult to deny. One, you can’t start where you want to finish. Secondly, a published reserve with no context is detrimental (Auction — $200,000 minimum bid) versus a published reasonable reserve can be beneficial (Auction — appraised for $350,000 with a $200,000 reserve.)
Here is just one example of an analysis published April 23, 2015 (59 pages) by two Paris School of Economics (and University College of London) professors which you can see cites 40 other research studies for its conclusions contained within. Of course those numerous other studies all cite other previous studies …
There may not be an agreement between researchers regarding if an absolute auction is better for the seller or if, rather, a with reserve auction is better. Yet, I continue to ask any of the approximate 50,000 auctioneers in the United States (who have seen auctioneers for years advertise a with reserve auction as absolute to attract more attention) have any of you seen an advertisement where an auctioneer is advertising an absolute auction as with reserve?
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.