Auctions are of two distinct types: “With (some sort of) reserve, or without (any such) reserve, also known as “absolute.” Sellers who selling absolute commit to sell their property to the highest bidder. Sellers who sell “with reserve” commit to possibly sell their property to the highest bidder.
There doesn’t appear to be any evidence with reserve auctions command larger crowds (more bidders) nor higher prices, other than the fact seller bidding can push an otherwise highest bid even higher. We wrote about such here: https://mikebrandlyauctioneer.wordpress.com/2021/07/27/which-is-better-for-the-seller-absolute-with-reserve/.
Some auctioneers don’t believe selling absolute has merit. We would ask why not … in that if you are properly marketing that property, why isn’t it demanding market value? The suggestion is — conducting a “with reserve” auction which attracts fewer bidders — demands more? No auctioneer can [legally] make any lot demand any certain price, so isn’t maximizing the bidder pool all we can do?
Of course, if you have property for which there is limited demand — a with reserve auction isn’t necessarily the correct format, and rather a sealed bid auction may produce better results. With less demand and disparate views of value, sealed bid events work extremely well.
We’ve also heard that “something could happen” which dictates a with reserve auction is better when that something that does happen in such an auction is certainly fewer bidders and lower prices. Some clearly overemphasize risk: https://mikebrandlyauctioneer.wordpress.com/2021/06/07/anomalist-auctioneers/.
This “it could happen” … so it will … makes some auctioneers use with reserve auctions which produce fewer bidders and lower prices. On the contrary, any properly marketed (yes, some aren’t) absolute auction (yes, some aren’t) produces market value.
We have held that people attend auctions in search of the “prospect of a deal.” It appears obvious as this prospect is maximized, so is the bidder pool. As such, more bidders produce better results for sellers: https://mikebrandlyauctioneer.wordpress.com/2009/12/11/auctions-and-an-iowa-corn-field/.
Too, if you are an auctioneer who doesn’t believe absolute auctions work (because you haven’t had enough experience with them, and/or don’t market your auctions sufficiently) then certainly don’t try to convince any seller to sell absolute. Those of us — and there are many — who regularly conduct absolute auctions market sufficiently to maximize price.
Importantly for the “something could happen” theorists, even an absolute auction can be canceled prior for want (lack) of bidders, as well as canceled if no bid is placed within a reasonable time. However, if there are sufficient bidders, isn’t a result matching market value likely?
Lastly, as we 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? You haven’t.
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.