I have noted that Daniel P. West has linked to my blog once if not more times and I appreciate that, and I have linked to his blog in this article. My writing today regards Dan’s contention that a seller’s “right of refusal” is more enticing to bidders/buyers than an advertised or secret reserve.
I respectfully disagree in part, in that bidders/buyers appreciate more disclosure, not less, and a low or reasonable published minimum bid is the best way to attract a bidder in a “with reserve” auction — beyond a true absolute auction. The [known] prospect of a deal is what drives bidders to auctions.
If a bidder can’t sense a prospect of a deal (versus the seller unilaterally turning down any and all offers) participation is difficult to generate. We wrote about the prospect of a deal and related topics here: https://mikebrandlyauctioneer.wordpress.com/2018/03/12/what-drives-bidders-to-an-auction/.
Dan’s article is here https://www.auctionmethod.com/blog/right-of-refusal-vs-reserve-bids and asserts that sellers sometimes don’t have a firm reserve in mind, and might lower their expectations after seeing the market. I would hold this happens far less than many believe, and the market the seller is seeing would have been larger and more potent with a low minimum bid.
We recently wrote about your seller [not] “seeing the market” and the fallacy that this type of auction produces the best results, and sellers should use this so-called “market” to decide to take less than they originally hoped: https://mikebrandlyauctioneer.wordpress.com/2022/06/27/your-seller-seeing-the-market/.
Auctioneers cannot determine the price and rather must endeavor to maximize the bidder pool in an attempt to maximize price. Anything that deters bidders lessens the chances of the highest possible price. Paul Milgrom and Robert Wilson seem clearly agree more disclosure is better for the seller: https://mikebrandlyauctioneer.wordpress.com/2020/10/16/providing-as-much-information-as-possible/.
Lastly, some auctioneers assert that bidders know they only engage sellers with reasonable expectations and participate accordingly. Yet, if these sellers all have reasonable expectations, why not an absolute auction? Why not an auction with a reasonable minimum bid?
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, Brandly Real Estate & Auction, 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 has served as faculty at the Certified Auctioneers Institute held at Indiana University and is approved by The Supreme Court of Ohio for attorney education.