Auctions, when simplified, are just a way to sell goods or services in a competitive manner. From the seller’s perspective, they use auctions to get top dollar for their items. From the buyer’s perspective, auctions are a means to find a bargain.
How you get to the result can occur in many ways depending on the type of auction used. This blog will explore the various kinds of auctions, what makes them different, and how to decode the various terminology.
English auctions are the most common type of auctions used. A single item is up for bid, and bids are placed in ascending value until only one bidder remains. When there are no more bids, this is when the quintessential auction phrase of “going, going, gone!” occurs.
Here is an example of an English auction: Person A bids $500 on an antique ring, person B bids $550, person C bids $575, and person A counters with a final bid of $600, person A will have purchased the ring for a price of $600.
English auctions are used for many types of items and events, especially antiques, artwork, and commercial equipment. The beauty of English auctions is bidders always know the current bid and have the choice of increasing their bid.
How the public perceives an item’s value is ultimately what determines how an English auction works. People bid on items up until a certain point in which they no longer deem it valuable. As the auction progresses, people drop out of the running one-by-one until one bidder remains.
Known as an auction without reserve, an absolute auction involves items sold to the highest bidder regardless of price.
Because there is no minimum bid, absolute auctions tend to generate more interest than other types of auctions. Absolute auctions are beneficial to both buyers and sellers – buyers are more likely to find a bargain deal, while sellers are more likely to get value for their items due to competitive bidding. It is a classic risk versus reward scenario.
Many government auctions use the no reserve method. This allows them to offload large quantities of items without having to haggle bidders with minimum prices. A recent example of this includes the City of Oklahoma City auctioning off a portion of their police fleet. The cruisers, which varied from SUVs and sedans, sold for varying prices depending on their condition, year, and mileage.
As the name suggests, minimum bid auctions include a minimum set price in which an item must sell for. For example, a seller may consign a car to an auction house with a minimum bid of $5,000. The auction house will advertise this price ahead of time so buyers know what the lowest winning bid can be.
Minimum bid auctions are meant to protect the seller, reducing the risk of an item selling for less than what is deemed market value. However, interest from buyers tends to be lower since minimum bids aren’t as attractive and can discourage some people from bidding.
Sellers also must be precise with their minimum bids. Setting the minimum too low can cost you money but pricing the minimum too high may limit potential buyers.
A reserve auction is another type of auction to protect the buyer. The seller decides on a price, which is not published, and reserves the right to accept or reject the winning bid. Although this decision-making process can be done a day or two after the auction, it’s typically done before the auction ends.
Think of the reserve price as a safety net – if you’re hoping to receive $100 for an item and the bids are $10 or $20, you can reject the offers and walk away with your item.
Much like a minimum bid auction, a reserve auction can have its drawbacks. Reserve auctions are unlikely to draw as much interest as an auction without a reserve (absolute auction). The tradeoff for protecting yourself is you’re likely to receive less money.
Reserve auctions are a popular choice for real estate, especially commercial properties.
Unlike a live auction, a sealed bid auction involves bids that are submitted privately to the seller. Usually, the seller then accepts the highest bid, which is known as a first-price sealed bid auction. In some cases, the seller may negotiate a final bid between the people or organizations who bid the highest. In other words, if two companies bid on a government property for a sealed bid auction, the seller can ask for two final bids to choose from.
A Vickery auction is another type of sealed bid auction. In this type of sale, the second-highest bid – not the first – is considered the winning bid. Vickery auctions allow buyers to submit a more truthful bid and one they’re comfortable with. This is because there isn’t an incentive to submit large bids since the highest bidder doesn’t win.
In addition to government contracts, sealed bid auctions are also used for real estate auctions and selling large-ticket items. For real estate auctions, sealed bids can help generate more interest on a property that may not have carried as much value on the open market.
Sellers who use sealed bid auctions have the ultimate control, although some buyers may not be interested in participating in this type of auction.
If you’re interested in buying or selling items at one of our weekly auctions, please check our auction schedule to find an event that interests you. Additionally, you can get in touch with us today using this contact form or call us directly at (405) 458-1645.
