Auctioneers often ask if there is any “proof” absolute auctions produce the highest prices for sellers. While there isn’t a consensus of proof, most research concludes absolute auctions increase the bidder pool and thus the final price. https://mikebrandlyauctioneer.wordpress.com/2021/07/27/which-is-better-for-the-seller-absolute-with-reserve/.
However, would a “with reserve” auction be better for a seller in certain circumstances? In simple terms, if a seller wants to “maybe sell” then a with reserve auction is the best option. If the seller wants (and is able) to “definitely sell” then absolute is the best choice.
Our summary of the available research on this subject included that with reserve auctions are possibly better otherwise when important bidders are deterred by large bidder pools and that the seller can bid (directly, through a proxy, or via a minimum bid) to increase the price. Otherwise, absolute (without reserve) auctions benefit the seller more.
It is maybe important to say again — no auctioneer can control or set the price, and rather can only endeavor to maximize the bidder pool and attract the right bidders. What feature of any auction lures bidders? The “prospect of a deal.” Which type of auction has the most “prospect of a deal?” An absolute auction.
Otherwise, for the seller that can’t or doesn’t wish to sell absolute, a published (disclosed) minimum bid is the next most attractive, but that minimum bid can’t defy the principle that “You can’t start where you want to finish” nor the important consideration of “context.”
Despite the Internet largely providing value estimates of virtually anything, selling a property for a minimum bid of $200,000 is greatly enhanced by adding the appraisal (market) value to say for example “Appraised for $300,000, minimum bid $200,000” It is obvious minimum bids in excess of about 70% are far less effective.
Of course, auctioneers also tell me that you can’t note the appraisal value because bidders won’t bid beyond that number, and also say that the seller is better to have a “with confirmation” auction so that he can change his mind (adjust his reserve) when he sees the marketing effort. Both these holdings are fallacies.
We wrote about the misconception that published reserves serve as pricing limits: https://mikebrandlyauctioneer.wordpress.com/2020/11/20/bidders-wont-bid-past-disclosed-reserve/. More recently, we noted the auction type that typically produces the smallest bidder pools: https://mikebrandlyauctioneer.wordpress.com/2022/06/27/your-seller-seeing-the-market/. It’s all about disclosure and thus attracting bidders …
Marketing is key for any auction. We would hold any auction properly advertised/promoted will sell for market value. In fact, auctioneers all over the country have told me that, so it seems clear “insurance” that deters bidders may not be prudent especially if it materially diminishes the “prospect of a deal.”
Importantly, not every seller is suitable for an auction of any type. We have suggested sellers with equity, urgency and reasonable expectations are prime candidates, and those lacking any of these important characteristics may not be.
While we have noted auctioneers (and sellers) should avoid risk, we don’t recommend avoiding higher prices at a cost of perceived peril given what we trust is your masterful marketing? In other words, we would ask if there’s proof with reserve auctions produce higher prices, and is your marketing sufficient to produce those results?
If you are “hitting it out of the park” conducting with reserve auctions, why would an absolute auction for the same property with the same terms ending on the same day/time produce anything less? Why wouldn’t an absolute auction produce a higher price? Is there proof it wouldn’t produce the identical price … or one even higher?
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.